When I go to my bank for a business loan, what are they going to be looking for?
Several things. First of all, cash flow. What's coming in to the business (income) and what's going out (expenses)? Is there enough cash flow to make the loan payments ("service the debt" in banker-speak)?
Second, they'll look at the business itself. Does the business have a promising future? Do its products/services fill a niche for which there is a demand? What is the competitive landscape? How might market conditions or other forces change the future picture for the business? For example, let's say your business involves purchasing distressed real estate, fixing up the properties, and selling them on an as-improved basis. The community you're buying properties in has just been dealt several devastating blows recently because several large employers have pulled out of the area, leaving thousands of individuals either jobless or moving elsewhere. The lender will take into account the likelihood that those conditions will negatively impact your business and will affect your cash flow. On the other hand, if the news were the opposite -- new employers were coming in to the area, bringing new jobs, new homebuyers, then the impact woiuld be positive and the lender would take that into account.
Third, they'll look at how you're going to use the loan proceeds. Is it a prudent use of funds, or are you trying to expand too quickly? Will borrowing $X amount allow you to increase your net revenues by a significant enough sum that it's a wise business move? Will the course of action you're pursuing with the borrowed money take away from your existing core business in any way?
Fourth, what is your history? How long have you been in business? Has the business had credit before? What's your track redord?
Fifth, what about your personal financial history? Have you proven that you can use credit wisely, that you repay your debts in a timely fashion, and that you know how to avoid getting overextended?
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Several things. First of all, cash flow. What's coming in to the business (income) and what's going out (expenses)? Is there enough cash flow to make the loan payments ("service the debt" in banker-speak)?
