Assess Your Business

How Banks Assess Your Business

Running a business can be difficult, especially if you don’t have the funds to grow and make it a success. There are finance options available for all types of businesses so that you can have access to cash to allow your business to thrive. If you think a loan would help to boost your business, your bank is the best place to start – they can offer a range of finance options of varying amounts to suit you. Applying for finance means that your bank will assess your business to decide whether you can make regular repayments.

Below, we’ll look at how they do this, and how you can put yourself in the best position for approval. 

Why apply for business finance?

No matter whether your business is newly established, or you’ve been trading for a while, you can benefit from business finance to help with anything you need to improve, like new premises, producing new products, hiring new staff, or training your current employees.

There are many types of business finance you can apply for, like short-term loans, start-up loans that are specifically tailored to suit those business owners that need a boost getting their company off the ground, and traditional bank loans that can offer established businesses a range of funds to use in whichever way they see fit. You could also choose an equipment loan to purchase equipment that your business needs to run smoothly and effectively.

These are just a few of the options available to businesses – during this process, your bank or lender will decide if you can make these loan repayments, and they assess this in a few ways, which we will look at below. 

Business plan 

If you’re a new business that is applying for finance, your bank might just ask to see a business plan to help them make their decision on whether they should lend to you. Having a detailed insight into your business means that lenders can work out whether your business is going to be profitable and sustainable, allowing you to meet loan repayments. If you are hoping to gain funding from your bank, there are a few things you’re going to have to include in your business plans, such as an overview of your business, the products, and services that you offer, a marketing plan, and a financial plan.

Having all this information within your business plan means that banks have a clear overview of how you plan to make your business a success. 

Business credit score 

Another element that your bank is going to assess when deciding whether to lend to you is your business credit score. This gives banks an indication of how you have managed to pay your bills and loans in the past. If your credit score is low, you may be at risk of not being approved, as this shows you haven’t been able to make repayments, or if you are approved, it might mean you will incur more interest on top of repayment amounts.

To give yourself the best chance of being approved for any loan you may need in the future, you should ensure that you prioritize paying your bills on time and in full, and make sure you don’t apply for loans with a range of banks and lenders at the same time, as this can impact your score. 

Loan history 

Banks have also been known to check the history of loans you may have taken out in the past. Along with credit score, this gives them a good idea of your company’s behavior when it comes to paying off your debt. Generally, they tend to check loans that you have taken out over the last 36 months, so they can get an idea of your repayments or any irregularities that may reoccur with their loan. Paying your loans back will not only help with your credit score but your general loan history too. 

Cash flow 

Banks will use your cash flow to assess your business’s creditworthiness. The amount of profit that you make plays a huge role in whether you can make repayments to your lender. As you’d expect, the better the cash flow, the more likely you are to be approved for a loan. Your bank will assess the likelihood of your business being unsuccessful, as well as the revenue you are left with after your expenses are subtracted. Maintaining a good cash flow means you’re more likely to be approved for finance by your chosen ba

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