Category: Articles
Tags: Commercial

Considerations for First Time Business Borrowers

Financial institutions wish to provide loans to businesses that are solvent and profitable.  Generally lending to one-person operations or new businesses without solid track records are considered high risk.  You will need to show the bank that a loan to you is a low risk proposition.  Thorough planning and management is essential to maximise the chances of securing a bank loan.Image

 
Each financial institution has its own criteria for assessing applications.  Generally, you will need to provide a comprehensive and well supported business plan, accurate financial forecasts and collateral to match the value of the loan.

Loan assessment

Many banks use an initial basic assessment known as the ‘3Cs’: Character, Cash flow, and Collateral.

  • Character relates to your past commercial experience, your skills, and your abilities.  The lender will assess whether you can actually do what you want to do.
  • Cash flow refers to the cash “ins” and “outs” of the business which should be realistic, showing that sufficient funds are projected to cover any loan requirements.
  • Collateral refers to what you are offering as security against any potential loss by the bank.

Risks involved

Both the lender and the borrower face risks when money is borrowed. The lender’s risk is that read more>>