Things Your Banker Wants to
Know
Any financial institution is
going to want pertinent data regarding you and your business in order to render
a fair and appropriate lending decision. This article will deal with issues that
you should know the answers to when looking for business loan and other types of
credit facilities.
First, your banker is going to
know what type of company you operate. This is one of the central questions that
is often overlooked by entrepreneurs when they prepare a business plan. For
instance, a business that deals in healthcare supplies is far less of a credit
risk than a business that deals in high end jewelry. Despite deleterious changes
in the economy, the business that provides healthcare supplies is more immune
from a negative economic environment.
Two, the business loan granting
institution is going to want to know how much you intend to borrow and the
overall purpose of the loan funds. Specifically, they are going to want to know
whether these funds will be used for working capital purposes or whether you are
seeking a business loan to purchase something tangible such as real estate,
equipment, or vehicles.
Three, the financial
institution will want to know your personal credit history. This, along with
your business plan, makes up a substantial portion of the lending decision. If
you have a poor credit history then it is extremely important that you address
any negative factors that appear on your credit reports. This is especially true
if there are any errors on the reports.
Four, collateral. The bank is
going to want to know what assets will be securing the business loan. In some
instances (such as if you are already wealthy and have outstanding credit), a
business loan may be granted on an unsecured basis. However, for small business
owners this is usually not the case. Although it is expected that some portion
of your business loan will be used for working capital purposes – your bank is
going to want to see that the financing is fully collateralized by either
business assets or personal assets.
Five, the bank is also going to
want to see a business plan. As we have discussed in our three previous articles
having a well written business plan that showcases why your business is going to
be profitable is imperative to obtaining a business loan.