What Are Long-term Creditors Usually Most Interested in Evaluating?

Getting a business loan from a long-term creditor is similar to what an individual faces when applying for a mortgage or car loan. Creditors want to know about your ability to repay the loan and your character. They will look at your payment history and your financial standing, which includes your credit rating.

Many lenders look at the five Cs of credit worthiness for individuals or entrepreneurs. These include a stable and reliable character, the capacity to repay a loan, collateral for the creditor’s protection, conditions of the economy, and credit history. If you are a current business owner or newcomer with start-up ideas, you have additional factors to consider when creditors evaluate you. After all, you’re not just someone who has a job and needs money for transportation or living accommodations. You are building the foundation of a long-term venture that could grow or fizzle.

Take a hard look at your financial statements and condition. Some small business owners use accountants to handle their affairs, but it’s best that you understand your profits and losses as much as they do. Lenders want to know about your company’s financial health. If they review your financial statements and discover you aren’t fully aware of what’s going on in your own business, they are less likely to consider loaning you more money. Consult with a financial accountant you trust or through small business organizations, just as you would consult a financial planner on your individual needs.

To get a loan, know how you intend to use the money for your venture. That means developing a good business plan that outlines your goals and objectives with as much detail as possible. Sometimes a good business plan gets a loan even for people who have had financial difficulties in the past, since it inspires confidence in the lender that your business is worth funding.

Collateral plays a significant role in lending for individuals and small business owners. Long-term creditors want to be paid back through regular monthly payments, and be assured you have financial backing for economic uncertainties in the future. Having strong financial reserves or investments in property assets will help in securing your loan. Include collateral factors in your business plan that address your financial issues in case something goes wrong with your venture. Solid cash flow lets creditors know you can be counted on to repay a loan.