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    4 factors banks consider before lending to a business

    Approaching a bank or lender for financial assistance or investment can be a scary step for any business. 

    Financial records do play a very important part in determining whether a bank is going to lend money, but there are some other factors that they bear in mind too. 

    Reviewing and enhancing each of the four areas below can really help to improve your chances of financial aid.

    1. Collateral

    You can promise all you like that you will pay money back, but that isn’t enough for banks and lenders. They need harder evidence that can be leveraged against the deal – enter ‘Collateral’. Collateral could be an asset such as a home or car you own. Banks are taking a risk by giving out money, therefore they want the risk to work both ways.

    This is especially true for larger loans and borrowers who lack a good credit score as lenders can seize the collateral, gaining back the money they lost. It may not add up to the original amount given, but having collateral still helps to increase the chances of you getting a loan.

    1. Character

    Lending can seem like a very formal and scary process, but it can essentially be boiled down to people selling to people – are you a risk personally to lend to?

    How you act and present yourself during the vetting process can make or break your chances of getting a loan. Having confidence and coming across as trustworthy will seriously benefit you. Having a great track record in business, industry knowledge and experience will help, as well as a good personal credit score and references to hand.

    1. Conditions

    Is your business venture a sensible idea given the current climate and state of your industry? It goes without saying that 2020 has thrown a spanner into the works of many sectors, such as retail and hospitality. It is these industries in which we have seen well-known businesses go into administration and liquidation, therefore it is quite a risky market to be investing into in the present day. On the other hand, sectors such as digital are growing hugely thanks to the massive surge in online sales and shift in consumer behaviour.

    As the success of different industries goes through ebbs and flows, what would be a great business idea today might not get the bank’s favour even just a few months down the line, so keep this in mind during the application process. 

    1. Capacity

    When looking at capacity, lenders will consider whether you are currently making (or are expected to make) enough cash flow to pay back the bank. Assets, liabilities and spare cash will all be taken into account when considering risk. If the risk is determined to be too high, they may not want to lend as chances are, they might not get their money back.

    In conclusion…

    When it comes to applying for a business loan, making your best assets shine through will work in your favour. 

    To ease the process, commercial loan experts can provide additional help by reviewing the current state of your business, helping you apply for loans and essentially acting as the middleman to sort through the hard work.

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