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The 5 C’s of Business Loans

The small business lending environment is tougher than ever if you’re looking for a bank loan. Though there are many forms of alternative lending available, such as invoice finance, many companies still see the banks as their first port of call. With around 40% of businesses being turned down for loans, it’s more important than ever to do your homework – on the whole, banks will look for 5 things when determining whether to lend to you or not:

Character

You need to make a good first impression and show you’re serious about your business proposal. The banks will look for positive credit reports and take references into account as well. They’ll be looking in depth at your background, education and track record so be sure you’ve got everything in order with as much information as possible.

Conditions

Though this might be part of your business plan already, it’s important to analyse your current position in the market. You’ll also need to be able to talk to your potential lender about any potential risks and the impact they have on your business, as well as your action plan to tackle them.

Cash Flow

A key consideration is whether you’ll be able to keep up with your repayments. Try to evidence your good cash flow with up-to-date records and projected figures; personal financial records might also be requested. This will all show you’ll be able to pay off your loan after all your business costs are paid.

Capital

The bank will look at the financial situation of your business, focusing on money you plan to invest, money already tied up in the company and the amount of cash you want to borrow. Commitment to your business can be evidenced by the amount you’re willing to invest yourself.

Collateral

This is a security blanket and used as a last resort, but any assets you have can provide a security alternative against the amount of money you’re looking to borrow. Property, stock and equipment are all commonly used, but be aware of the risk of using your own personal assets – such as your house – as collateral.

 

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