How a bank looks at your business
4 minutes read
As an entrepreneur, you want your company to prosper and grow. But to reach your full potential, you will likely need to find financing for your business.
Understanding how a bank thinks about your business will help you feel more confident and improve your chances of getting a business loan.
Bankers need to assess whether your project is a good risk and whether you will be able to repay your loan. Their risk evaluation will determine whether you can get a loan, but also what the interest rate and conditions will be.
What are bankers looking for?
What exactly do banks look for? They start by evaluating your project. Will it contribute to the profitable growth of your company in years to come?
They also look at the ability of your business to repay a loan by analyzing the following indicators.
- The financial strength of your business—The cash flow it generates, existing debts and the state of your personal finances.
- Assets—Do you have assets to secure the loan, meaning assets the bank can use to repay itself in case of default?
- Your management credibility—Your personal background, past experience, education and the professional training of you and your management team.
Finally, they’ll carefully analyze your industry, the economy and the competition.
Basically, banks are looking to reduce the risk of lending money to your business. The better you present yourself, and the more solid your business plan is, the better your chances of getting your loan approved to get the money you need to grow your business and succeed.