Preparing for a business loan application

A growing business needs resources to expand. Sometimes these resources aren’t available at a certain time and they must be searched elsewhere. This is the time to consider a business loan. Before rushing into a bank take the time to understand some of the factors involved in the approval of your application.

Your business has developed and gained a value. The creditors are interested in the amount of money you have invested in your assets to operate without problems. This is referred to as equity investments and is used to calculate the ratio between the debt and worth of your business, helping the creditors to decide the amount they can loan you.

The value of your investments acts like a defense against weak or bad economic conditions. The higher the value is, the bigger the strength to endure an averse climate. Small amounts of investments cannot attract large amounts of cash for your operations.

Another aspect to take into consideration when thinking about expansion is the income. The money that your business generates is an additional requirement for the lender’s security, as your financial obligations are to be paid in cash. This means you will have to be not only a good business manager, but also a good cash manager, in order to have liquidity when repayments are due.

The difference between excess of assets and the liabilities is defined as working capital. A high amount of working capital is seen by the creditors as a good risk coverage as you can use it to pay off any debts your business has. So this is definitely a reflection of your company’s ability to repay a loan.

Other issue of importance can be the collateral, in those cases where the creditor requires some tangible protection against a default. The collateral can be represented by a business asset of even a personal asset.

Now you are ready to go and prepare a business loan application. Remember to indicate how much money are you bringing and how much should come from outside. Repayment plan should present an estimated pattern of increase in sales and consequent cash increase which will enable the repayments.

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