By Nsunjo Erica
Business owners normally apply for loans from banks for different reasons which may include, startup, expansion, financial crisis, name it. Banks do not just give out loans to all businesses if they do not meet all the requirements needed.
Basically, on the side of banks, they’re searching for solid evidence that your business will be able to repay the loan, plus interest, with metronomic regularity without failure that may call for legal involvement sometimes.
All financial institutions will expect the loan to be fully secured, either with business assets or personal collateral, this is the only security that banks have over their money when they decide to loan it to you.
If you didn’t know, even if banks make huge interests from offering loans, sometimes banks say no to give out loans. Refusal by banks only occurs when your application doesn’t meet their lending requirements below.
Purpose: What will the funds be used for? Banks want a valid and profitable reason as to why you need the money, one that guarantees profits for payment of the loan. (Note that banks won’t lend for speculating, passive investments, pyramid sales, or gambling.)
Amount: How much money do you want to borrow? Yes, the bank will also ask you why that particular amount, they want to make sure you are indeed confident that it’s an amount you can pay back religiously.
Repayment Plan: Banks normally ask what kind of strategies you have laid to spend their money, for how long will you need the money, and what is your specific plan for repayment?
Collateral: Financial institutions always take in assets, business, or personal as collateral, however, what is their market value? What portion of their value can you use as collateral? The banks must make sure collateral value is worth the loan and its interests.
Asset and Liability Statement: Your current, complete business asset, and liability financial statements (your balance sheet). The bank needs to determine your ability to repay a loan basing on the financial stability of your business.
Current Income and Financial Performance Statement: Your current, complete business statement of income and expenses (your profit and loss statement, or P&L) are also needed.
Business Plan Details: Your written plan for your business including goals and action steps, timetable, resource allocation, the funding required, and related financial data. You may be asked for cash flow projections for at least a year.
Historic Financial Performance Information: Past business financial performance information under your ownership or under the previous owner’s ownership, if any.
Other Information As Required: Information about you (your C.V, your loan Guarantor, someone who will pledge his/her assets and financials to guarantee repayment of the loan should you default.)