Banks look at several criteria before considering business loan applications, but some criteria are more important than others.
By: Hitesh Khan/
Not all banks are created equal, but many of them focus on the same areas throughout the loan review process. Learn what documentation, projections and narratives you’ll need to prepare as well as tips to ensure you negotiate the best loan package available.
Whether you are applying to a bank for:
- A line of home equity credit
- A line of credit for business working capital
- A commercial short-term loan
- An equipment loan
- Real estate financing
- Some other type of commercial or consumer loan
Many of the same basic lending principles apply.
Two Important Keys of Business Loan Applications
Two of the most fundamental characteristics most prospective lenders will concentrate on before considering business loan applications include:
- Credit history
While one of this criteria is largely objective data (although interpretation of the numbers can be subjective), the other item – your character – allows the lender to make a more subjective assessment of your business’s market appeal and the business savvy of you and any of your fellow operators.
In assessing whether to grant business loan applications to small business owners, lenders are often willing to consider individual factors that represent strengths or weaknesses for a loan.
Lenders will want to review both the credit history of your business (if the business is not a startup) and, because a personal guarantee is often required for a small business loan, your personal credit history. If you want a lender to consider your business loan applications better, it is important to obtain a credit report on yourself and your business before you apply for credit.
If you discover any inaccuracies or problems, you can correct them before any damage to your loan application has occurred. If you can, find out which credit reporting company your prospective lender uses and request a report from that company.
Reviewing Your Commercial Credit History
Before you apply for commercial credit, you should review a credit report on your own business, if your business has been in existence for a while. Most conventional lenders will expect a minimum of four or five trade experiences listed on a business report before they consider the business creditworthiness. If you have been operating your business without credit, or with personal assets, you should consider making some trade credit purchases in order to establish a credit history for your enterprise.
Reviewing Your Consumer Credit History
Consumer credit agencies are required to remove any information from the report that cannot be verified or has been shown to be inaccurate. However, before you submit a letter disputing any debt to the credit reporting company, it’s often a good idea to contact the relevant creditor directly. If an error was made, you can often clear up the dispute more quickly if you take the initiative.
If the dispute is not resolved and your credit report is not adjusted, you have the right to file a statement or explanation regarding the alleged debt with the credit report.
Assessing Your Character as a Potential Business Borrower
The weight given to a lender’s assessment of a borrower’s character can vary tremendously between lending institutions and between individual lending officers. Many small businesses have found more success “selling” their reputation and good character to smaller lenders.
Improving Your Character in Front of Lenders
As a general rule, the following traits are considered the most important when a lender considers your character:
- Successful prior business experience
- An existing or past relationship with the lender (e.g., prior credit or depositor relationship)
- Referrals by respected community members
- References from professionals (accountants, lawyers, business advisers) who have reviewed your proposals
- Evidence of your care and effort in the business planning process
Many banks consider the amount of investment the owners themselves are committing to the business as evidence of a borrower’s “character.”
On top of that, many commercial lenders, financial institutions and banks want the owner to finance between 25 percent to 50 percent of the projected cost of a startup business or new project. If your investment is considered not significant enough, a lender may consider it a lack of both owner confidence and dedication to the business.
How to Secure a Business Expansion Loan Quickly
If you are searching for a business expansion loan, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.
If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore.
And the good thing – whether it is business expansion loans or mortgage loans – is that all our services are free of charge. So it’s all worth it to secure a loan through us for your business expansion needs.
Contact us for advice on a new home loan.
Contact us for home loan or refinancing advice.