The smooth flow of finances makes for an indispensable part of running a business. It ensures that your business activities run in accordance to the plan while also providing capital for business expansion. There are several ways such as crowdfunding, angel investors and personal savings that can be used to generate funds for business. However, a business loan is a common way of funding and can let you access a large sum of money. These type of loans are offered by leading financial institutions.
Banks immensely review an application before approving a business loan. These help in gagging the repayment capacity of the business. Before applying for a business loan, you must be well-aware of the factors that are assessed by the bank.
Credit history – Banks consider the credit history to be an extremely important indicator of a borrower’s repayment capacity. It is essential that you and your business have a good score or it could dampen your chances of getting the loan approved. A personal credit score that ranges from 700-750 is considered to be a good score. Financial companies regard a lower score holder to be a potential risk.
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Collateral – While banks offer unsecured business loans, there are some secured loans that require you to generate a collateral. The secured lending will involve a collateral that can include anything from a real estate property to a high-value business machinery.
Business cash flow – Banks evaluate the cash flow of the business and use this as a driving factor for approving a business loan. A business with a low cash flow is regarded to carry a risk. For this purpose, the banking institution will ask you to provide a bank statement for the business, as well as for the personal account. The statements provide a clear understanding of the cash flow.
Documentation – Every business has a set of documents that continue to grow with its expansion. Before approving of a business loan, the bank will need you to present different documents that include identity proof, address proof, business license, financial documents, business ownership proof and more. These documents prove that your business is legal and the lender only offers a business loan after viewing the same.
Lacking in any of the above stated areas can cause a hindrance in the approval of your business loan. Hence, ensure that you sort the same before applying for one.