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Budgeting & Finance Guide

Things Banks Will Ask When You Need A Business Loan


Every business out there requires survival. When a business owner puts in for a loan and such is rejected, the disappointment that comes with it is better imagined than experienced. We are going to dwell on strategies that will ensure successful loan application for every business loan.

Business Plan

No bank will risk putting their money where there is no proof of a serious business plan of action. Before you approach any of the banks, make sure that you have your business plan in place which must include a summary of your company, the product, your market, team, as well as your finances. Get all the factors listed tidied and be prepared to answer questions bothering on them from the bank officials.

Your Business Financial Details

Another area of interest where the banks will ask likely questions is about your financial details. They will want to know about your credit score. The majority of the banks have a limit and if your credit score is below that, the business loan will not be given. It is best to know the required credit score limit and make sure that you are up to it before you put in your loan application. The details of your debt profile and performances in past loans will also be verified. Details on your bank accounts, investment accounts, credit card accounts will also be demanded.

Complete details on Accounts Receivable/Payable

Questions will be asked on your sales and credit history. Banks will want to know whether your firm can fulfill the weekly or monthly repayment schedules. You are expected to know what your accounts receivables are. Credit references will also be demanded who will vouch for your ability to repay the loans on schedule. This is a condition that must be fulfilled to get the confidence of the lender.

Your Financial Statement

Get your balance sheet ready. It will include all the details on your complete details on Accounts Receivable. The banks are not interested in the past glory of any company; they will show particular interest in your latest balance sheet. The profit and loss statement of your company will be required for at least three years. If your company is not up to three years, then your credit score must be high enough as well as assets that you can put up as collateral to be given any consideration. If your business is the one classified as big, then questions will be asked about your audited account. It will cost you some few thousand dollars to have the CPA go over your account and put their seal of accuracy on it. The good thing here is the fact that banks care more about the assets that they can see through your portfolio in their consideration for the loan.

Your Financial Details

You must be prepared to divulge all your financial details before the loan can be granted. Everything relating to your assets and liabilities will be scrutinized. Think of the following areas: your social security numbers, net worth, the details on your assets and liabilities which include your home, credit card accounts, auto loans, mortgages, vehicles, investment accounts, and several others will be demanded before the loan is given. If the business is into a partnership, then all the details stated above of the major shareholders will be demanded. All the details above are part of what is called the personal guarantee that the banks will demand.

Insurance information

If your business is a new organization that depends on key founders; then insurance on all such founders will be demanded to minimize the risks on the part of the lender. In the unfortunate event of the death of any of the founders, the banks will want proof that they will not lose out completely through the provision of insurance on all the founders. The fine print of such insurance will direct the death payment to go to the banks first and they will, in turn, settle their loan.

The Agreement On Future Ratios

If you are taking the loan from a commercial bank, then you should be prepared for what is called loan covenants where the company keeps some key ratios within some certain defined limits. Your finances should not fall below the levels in the future; if that be the case, you are technically liable of default.

Collateral

We are bringing this at the rear; it is a must for any business that wants to secure the loan from any bank. You will be required to present hard assets which will be used to back up your loan request.

Conclusion

The above are all the banks will demand from any borrower for business purposes. If you are prepared in all the areas stated above, getting the loan for your company will be like a stroll in the park. Answers to all the questions will receive the needed nod with adequate preparations.