Wednesday 26 June 2013

Things to Keep in Mind While Applying Commercial Loans

Thousands of small business borrowers and startups place a commercial loan application with their preferred bank or private lenders. However, it is only a few who stand a good chance of getting their loan request sanctioned. Not many borrowers understand the odds that can increase their prospect of getting commercial loans. Here are certain factors to keep in mind when applying for commercial loans.


Things to Keep in Mind While Applying Commercial Loans

Credit scores

Financial institutions review the credit history of a borrower when determining the loan applicant’s eligibility to get funds from them. Poor credit scores can hamper the chances of a small business borrower to get adequate funding. Delayed payments of bills and interest rates or defaulting on repayment of previous loans can worsen the credit scores and lessen the chances of traditional lending sources to sanction the borrower’s loan. Brush up your credit records and clear out discrepancies in the credit information before applying for a loan.


Banks and lenders require records pertaining to your balance sheet statements and cash flow records when reviewing the loan request. Tax returns of the last 4- years will also be assessed of your business and the individual who guarantees the loan. Often lenders require small business borrowers to make covenants and promises that their business will come up with certain growth results in the future. Certified financial statements have to be produced before the lending agency to show your repayment capacity of the loan amount.

Strong business plan

Prospective lenders will be convinced to offer funding solutions to support your small business or startup if you can show a successful business plan. Mention in great detail about the business idea for which you require commercial loan. In case the loan is being taken for improvement or purchase of an asset or machinery then elaborate on how the improvements will bring about enhanced productivity, increased competitiveness and higher profits. Projections of profits in the future will only evoke further interest of banks and lenders to sanction the commercial loan request.


Small business borrower or startups with valuable asset pledged as collateral against the loan amount stand higher chances of securing loans from traditional sources. House, non-agricultural land, factory, jewelry, property or any other valuable asset can be put up as guarantee against the loan amount. Ownership of the asset pledged as guarantee against the sanctioned loan amount gets transferred to the lending agency when the borrower defaults on loan repayment terms.

Stable financial conditions

Often commercial loan lenders require business borrowers to possess a certain cash flow and show a certain debt-to-cash-flow ratio in order to prove their capacity to take on high interest rate loan. In case you are unsure about achieving a certain business cash flow limit then it is best to opt for non-bank loans. Non-traditional lending agencies may offer you a loan despite an uncertain profit projection and waive all covenants except for timely repayment of loan but it may come at a slightly higher interest rate.

Meeting other criteria and proving the worth of the idea for which loan is being taken can help a business borrower to find solutions for cash flow problems and fund shortages.

  1. Without any doubt all these criteria are important when speaking of business loan or bank loans for consumers as well as mortgages or car loans, but let's not forget that there are cases when you may need money and quickly. The credit history check and the other formalities can take rather a long time, then alternative lending services, like can be of great help for the consumers.


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