Five Important Criteria for Applying
for the Business Loan
Before exposing themselves and granting a loan, the credit institution or financial institutions ensure that the applicant has some essential requirements that guarantee that sum can be repaid within the pre-determined time. The borrowers must fulfill the following 5 criteria while applying for the loan:
Requirements for applying for loan...
1. CHARACTER OF COMMERCIAL BORROWER
The first element that a business must consider before applying for a business loan is their business's character. After all, in the longer or shorter term, a struggling business run by a competent administration has a better chance of success than a profitable business run by an unqualified administration. Alongside this, it's vital you look into the different varieties of loans you can apply for. For instance, if you're a small business a sba loan would be perfect for you.
2. THE REPAYMENT CAPACITY
The repayment capacity of the business is the second most important criterion. This criterion is essentially the element that will make a decision regarding whether a corporation can manage a loan or not. It determines a business's ability to meet the monthly payments of its obligations, both in the short and long term. The essential of this point is that your income is higher than your expenses and demonstrates the ability to pay. This point relies mainly on the company's capability to make income and profit. This is calculated by going through the income statement (revenue, costs, profits) and cash flow (cash flow).
A business that be unsuccessful to make income and profits will never be capable to meet its credit promise. A business that make a significant turnover but, which make bigger its sales on credit and cannot get paid rapidly, will have a cash flow difficulty and have complexity in paying its amount outstanding on time. We must keep in mind that we can pay debt only when we are in profit or have cash.
Using the capital of a company it is easy to find out financial structure of the corporation. In this case, financial organization analyze the financial ratios. This part frequently occupies the most time for the credit forecaster as it appraise the business in the longer term.
ikano measures the company's solvency, that is to say, the exposure of assets over liabilities. A corporation that has build up a significant amount of income over its lifetime will be better capable to face shortage during hard times and be more favorable for obtaining credit.
4. CREDIT HISTORY
When applying for a loan, banks access the credit bureaus to analyze the direct and indirect debts existing in the financial system. The original and current amount of the debts, the terms of the obligations maintained, the quality of payment, and the credit guarantee. A direct debt is understood as that obligation in which the debtor is the beneficiary, while in indirect debt, the debtor functions as the joint guarantor of another loan.
5. QUALITY OF GUARANTEE AND COLLATERAL
Generally, for personal loans, joint guarantors are required, that is, what was previously known as guarantees, who are the people who will respond to the bank in the event of any non-payment. This joint guarantor must also meet the same requirements as the loan applicant: the ability to pay and a good credit record. There are different conditions for a loan practiced depending on the loan characteristics and the channel you choose to open and manage. In general, an online loan guarantees the lowest rates, precisely because the opening can take place remotely. The management is sent back to its owner through the digital channels of the bank or financial institution.
The business world is human, and decisions are often subjective. It is, therefore, important to always project a good image when dealing with banks. By pledged collateral, the employer can show the lender that he is not a high-risk borrower. Providing collateral can lower interest rates and ultimately make the loan more affordable. Collateral also helps open up other financing options for the borrower, such as higher loan amounts and loans that the borrower is not eligible to receive.