The steps you must take to apply for a business loan may initially seem daunting but don’t worry – our team are here to guide you through the whole process.
All lenders work to different criteria, so giving a set of standard terms is impossible. They do, however, tend to look at very similar factors in assessing loan amounts and pricing. The most common areas of assessment for business loans are:
- Accounting information (turnover and net profit)
- Affordability (loan amount and repayments compared to profit)
- Bank statements and account conduct
- Credit history
- The effect of the loan on the business
Below, we will look at each of these areas individually to highlight what information this provides to the lender:
Firstly, a lender will look at turnover and profit. The turnover and net profit shown in the accounts are the main indicators of affordability of the loan you have requested.
Certain lenders will make the assessment purely on the headlines of the accounts, however, most will look into the situation deeper.
Sometimes a business has previously struggled but is either turning around, or a cash injection will stabilise the situation. In cases like this, there will be an assessment around the likelihood of how the cash injection will help the business and the risk involved.
On top of this, there may be other expenses in the accounts that are no longer relevant, such as one-off costs, or payments that have ceased. In this situation, certain adjustments are made to the profit to produce a more realistic figure.
Bank Statements & Account Conduct
A lender will generally request your last 3-6 months business bank statements. By checking the statements, they will be given a good picture of the cash flow of the business.
Account conduct will be an important factor here – any missed payments or returned items could count against you with certain lenders.
Business loan lenders will generally use your credit history as a guide to the likelihood of repaying the loan without issue. A judgement call will often be used, with adverse credit not necessarily meaning a business loan is ruled out, although it could increase the interest rate slightly.
Recent or ongoing credit problems are likely to be judged more harshly than an isolated issue or problems in the past.