Obtaining a business loan is essential for small businesses that want to grow and expand their operations. Whether you’re seeking funding for new equipment, additional staff, or to expand your physical location, understanding what bankers will ask is vital. Below, we will discuss eight things the bank will ask if you need a business loan. This will help you prepare for the lending process and increase your chances of securing funding.
Business Plan and Financial Statements
The first thing banks will ask is a detailed business plan outlining your vision, objectives, and how you plan to generate revenue. This business plan should include past financial statements, such as balance sheets, profits and losses, and cash flow statements. Lenders use this information to assess the financial health of your business and determine your capacity to repay the loan.
Purpose of The Loan
Banks will also want to know how you plan to use the funds provided by the loan. The more specific you can be, the better. Consider breaking down the loan’s purpose into categories, such as marketing, equipment, inventory, or hiring new employees.
Collateral
Collateral is any asset that you offer as security against the loan. This could include inventory, property, or equipment. The bank will want to know what assets you are willing to put up as collateral and the value of each item.
Credit History
Your credit history will be a significant factor in whether you are approved for a loan. Be prepared to provide your personal credit report and any relevant business credit reports. Lenders will also examine your payment history, credit score, and any existing debt obligations.
Market Assessment
Banks will want to understand the overall market trends and competition that may impact your ability to generate revenue and repay the loan. Present comprehensive market data that provides insight into your industry and supports your business plan.
Projections
When looking for funding, share projections for revenue growth and cash flow for the business. This supports the overall case for the loan and demonstrates your understanding of the business and industry trends.
Business Experience
It’s important to showcase your business management experience. This includes discussing previous successes and challenges and being ready to talk about how you will navigate future opportunities and challenges.
Personal Guarantees
Finally, banks may require a personal guarantee from business owners for loan executives, owners, or partners. This is a promise that they will repay the loan personally if the business cannot.