What do Banks Look for When Reviewing a Business Loan Application?

Although the exact review process of a business loan application varies from one bank to another, there are certain areas which most of them take into consideration. These are:

Credit History

Most banks check the credit history of the business itself, and also that the applicant’s (i.e. personal credit history). This gives them a better idea of how risky the profile is.

Usually, it’s best if both types of credit reports are excellent. So, if the credit history of one vastly differs from the other then it may raise concerns.

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Cash Flow and Business Projections

The cash flow of a business is an important determining factor of a loan review process. Basically, the lender wants to know whether the business cash flow is enough for the applicant to repay the loan. Thus, both the cash inflow and outflow is taken into consideration, preferably from the past six months or longer.

Most lenders also ask for a detailed business plan for review. They want to know about the revenue models, scaling plan, marketing strategies, etc.

Collateral

Unlike personal loans or home loans, business loans are usually risky, as the cash flow is susceptible to fluctuations and also there is a high level of uncertainty if the business is new. Thus, it usually helps if the applicant has collateral, such as another business, property, etc. If any of these is available then it can nudge their application in the right direction.