How to get a loan to buy a business | BDC.ca
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3 keys to obtaining a business loan

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Applying for and obtaining loans are a crucial part of the business process. When you are seeking a business loan from a commercial lender, there are a number of things you should be aware of and able to articulate when applying. The three most important things to show a lender are: Management; cash flow and profitability; and security.

1. Management

Probably the most important thing a lender wants to see is management. The strength of your management will largely determine your ability to generate enough cash flow to repay the loan. The lender will look at your past history in business for indications that you can successfully run a business and make money.

2. Cash Flow/Profitability

The business' ability to generate sufficient cash to repay both the principal and the interest, and still leave sufficient cash in the business to run its day-to-day operations.

3. Security

The quality of the security being offered to support the loan is also important because if the loan goes sour, the lender will want the ability to seize assets sufficient in value to sell and pay off the balance of the loan.

Other

These are the classic considerations when applying for a loan. Some lenders have recently developed innovative lending criteria, which still rely to a large extent on an assessment of management. These lenders tend to place less emphasis on security and more on cash flow. One of the tools used when assessing security, particularly in small and medium-sized enterprises (SMEs), involves credit checks on management. The rationale here is that people who handle their own finances well, will likely handle the finances of their business equally well. If that is the case, less security is required to support the loan.

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