Businesses require capital to facilitate the startup, sustain the operations and enable revenue creation for future expansion. The difficult financial conditions put your small business in jeopardy without alternative sources of funds. However, lenders are willing to provide you with business loans if you prove to be capable of repaying in a stipulated time. The lenders have different requirements to determine if you are eligible for a loan and how much you can get. They include:
Time in Business
Creditors try to find trustworthy businesses for their loan products because they understand the risk of losing money due not defaulters. The lenders have more trust for establishments with many years in the market because they know that the business is a legitimate venture. The creditors will look at your business setup and physical holdings to establish that there is business registration data proving government clearance. The loan provider will seek to confirm that their money is in the safe hands of a well-known company before giving it away.
You will find the best companies to give you a higher loan amount if your business has a long history in operation since they know that you are a trustworthy partner. The creditor will be willing to offer support and renegotiate loan terms freely because they know you are a reliable borrower. The lenders will give you a lower loan amount if you are a new entry because there is doubt about your company’s long-term survival. There is fear about scammers setting up proxy businesses to defraud them and a new business going bankrupt before loan settlement.
Credit Score
The lenders look at the business credit score to find indicators of the reliability of your establishment in loan repayment. The credit score underscores several factors whose details exist in the credit report you give to the lending firm during the application for the business loan. The value on the report determines the amount, the interest rates, and the loan repayment period you will receive. A high credit score reflects your status as a reliable borrower with the intention and ability to pay, thus making your business eligible for high loan amounts.
Loan Repayment History
The payment history on the credit report indicates how many loans you received in the past while capturing your repayment behavior. A good history will create a healthy relationship with the lender increasing your eligibility for high amounts with lower interest rates. You will also negotiate for extended repayment periods or lower fines when you do not meet the deadlines due to the creditor’s trust.
Monthly Revenues from the Business
Another element that the loan provider relies on is the monthly income generated by your business after removing all expenditures. The lenders are inclined to give high loan amounts if you have evidence that your business is doing well to create sufficient income to service the loan. The loan repayment agreement requires regular deposits of the cumulative amount depending on the agreed interest rates. The business must indicate that its revenue stream is sufficient to meet the creditor’s demands.
A high revenue stream by your business puts you in the apposition to negotiate for high loan amounts since you have a reliable backing to facilitate payment. The revenue will also help you earn better interest rates and flexible repayment schedules since loan providers tend to cultivate trust with serious borrowers.
Remarks
The eligibility of a business for loans from financial institutions depends on the evidence of the desire and ability to pay back. The lenders desire to develop a long-term relationship with companies that are responsible borrowers concerning loan repayment schedules. You will find creditors to offer you cheaper loans if you prove that your establishment has a history of settling debts and the revenue stream to do.
Interesting Related Article: “How to Refinance Business Loans“