Like any other loan application, when it comes to applying for a business loan there are certain factors you need to be aware of. Based on these factors your lender will determine how much of a risk you and your business are. In turn, you can gauge how much of risk level you possess and improve your chances of getting the right loan with the lowest rate possible.
These factors are mainly divided into three different C’s, namely, cash flow, collateral and credit score. Based on these factors your lender will calculate the perceived risk as well the terms of the loan. Given below is the detailed discussion of these factors and how you can make the most of it to get your loan for business:
Cash flow: Of all the C’s, Cash flow is the most influential and most dominant one.Lenders will first look and evaluate your business’s bank accounts when it comes to cash flow. Factors such as in and out cash flows, accounts receivable and credit card statements, in particular, will be taken into consideration. The information they will gain from the documents will be used as a reference for your business loan application. One of the most common types of endorsing that lenders will go through is the account receivable in addition to the average daily balance, the volume of deposits in a month and the total amount of non – sufficient funds. Regarding cash flow, you should have a higher than average daily balance, larger number of deposits and lower number of NSF’s.
Collateral: Collateral in nothing but the asset you will provide as security when applying for a loan for business. In most cases, the collateral provided is the business itself. However, this depends on on the lender you will seeking compensation from. While some lenders will opt for tangible assets, others would also seek non – tangible assets. The longer the business had functioned, the more collateral value you, as an owner can gain. But it also depends on the size of your business.
Credit Score: Plenty loan applicants confuse the credit score between a personal one and a business one. But in truth, the business credit is rarely evaluated. Unless you, as an owner has been in business for more than five to six years, establishing a business credit, most lenders will look at the personal credit score. To a lender, a business owner’s personal record of financial management will be as important as their business’s record. They will perceive the creditworthiness as indicating of overall management and attention to every detail. If an owner cannot manage their finances correctly in the early stages, it can be clearly evident on the credit score.