You will know if bank loans are the right financing for your business once you go through all the requirements. To qualify for a bank loan, there are lots of requirements you have to meet.
It’s no news that businesses have difficulty meeting all of those requirements. Those who do, may not access bank loans immediately because of the tedious process that is involved.
For you to have enough financing to cater for payrolls, inventory, and a range of other costs, you may need to get loans from your bank.
What are the requirements for bank loans?
You will know if bank loans are the right financing for your business once you go through all these requirements.
Bank loans take cognizant of the purpose
Banks do not loan money to businesses that want to clear debts. Your reasons must have nothing to do with paying off debts. Instead, banks will be willing to grant you loans if you want to;
- Grow your business faster
- Develop new products
- Business Expansion
- Improve the rate of Cashflow
- Purchase more equipment
Getting bank loans will limit the usage of the funds. This is because an inventory will be required. Also, the idea of using the money for another purpose other than the already stated or agreed purpose may frown upon.
You can leverage the grace of getting loans from online lenders or an alternative source if you are looking for flexibility with the use cases of the funds borrowed.
Read also: 9 loan apps you can borrow money instantly
Business experience is required for bank loans
Your bank will have to trust that you will do good business so that you will be able to repay the loans in full and on time. This means if you are an already existing business, and you have been able to manage your finances well, you will be favored. If you are new to the business, eyebrows will be raised. You may likely not have received any loan.
Read also: How to raise money for your business
To qualify for bank loans you need to have a business plan.
The amount of money that you will be eligible for is dependent on your business plan. It is therefore crucial that no matter how tedious creating a business plan is, you must have one.
When applying for bank loans, make your business plan reflect your business goals and other relevant financial information. You can get feedback from another entrepreneur before submitting.
How good is your credit history?
Your bank will hand you loans after running a credit check on your personal and business account. Your credit score should be thoroughly checked before opting for loans. So that if it’s below the minimum requirements, you can work towards improving them.
A bad credit score will affect the interest rate charged on your loan amounts. At the same time, you might not get loan approval from your bank.
Personal Information affects bank loans too
You might be skeptical about this, but, personal information affects your access to loans too. Bank will need to have your personal information, such as;
- Place of residence
- Criminal records
- Educational Information
- Tax information
- Financial Statement
- Assets, etc.
Financial statement is as important as personal information for bank loans
Banks may want to see your business financial projections and balances. For this reason, you may need to submit some or all of the following;
- Business balance sheet
- Business profit and loss statements
- cash flow statements
- Income statements, etc.
For payment guarantees, banks are in love with collaterals. This helps them get refunds without hassles, in any fail business situation.
Banks often match the loan amounts with the available collaterals. This could be equipment, inventories, home, offices, lands, automobiles, expensive antiques, and Jewelry, etc.
Collaterals can reduce the possibility of loan rejection from your bank. What they look for is the life expectancy of your collaterals and match them with the amount you borrow.
The business owner must sign a personal guarantee before receiving bank loans. It’s a written promise that pledges that you will repay your business loans using your assets if your business fails to repay the loan balance. These assets are likely to be your house, finances, or investment account and portfolios.
It may not be difficult for you to get bank loans as the society thinks. You only need to meet the aforementioned requirements and you are good to go. However, consider analyzing your business goals and outlook before borrowing from your bank.