What Banks Expect from You When Applying for Business Loan

What Banks Expect from You When Applying for Business Loan
January 12 11:04 2019 Print This Article

Asking for a loan is not easy and it will require a lot of things but it can be worth it at the end of the day. You consider small business loans in singapore because you have found a business opportunity that outweighs potential debt.

Before you consider a business loan, it’s important that you already determined the return on investment of the opportunity. You should consider some time weighing the cost of the loan versus the revenue you will generate.  

Now it’s time to determine what banks expect from you when applying for a business loan. Here’s a list:

Collateral
Banks lend money to start-ups. However, the business needs to guarantee that they can repay the loan. This is where collateral comes into the picture. Collateral refers to something that is pledged as security for repayment of a loan. In case of non-payment, the bank has the legal authority to forfeit the asset.

Business plan
The vast majority of business loan applications require a business plan. A business plan is important because it will detail the strategies to help the business generate profits. The business plan will focus on specific steps necessary for the business idea to succeed. It will also help businesses achieve short-term and long-term objectives.

Company financial statements
To determine your suitability for a loan, the bank will ask company financial statements. The financial statements include the following:
• Positive cash balance: Your cash balance need to be positive because it will reflect

how you manage your cash and it could paint a picture that you could be a responsible borrower. If you have a negative balance in your bank statement, it means that you’re poorly managing your cash.
• Frequent deposits: The bank also needs to check the nature of your deposits like where they are sourced and how often it occurs. If you have consistent and frequent deposits, it’s one indication that your business is operating profitably. Keep in mind that deposits suggest that business is active and the revenues come steadily because of new and recurring sales transactions.
• Replenished withdrawals: As soon as the bank verified what is flowing into your business account, they want to see another component of your bank statement – withdrawals. In business, it’s normal to incur withdrawals as long as they do not deplete your cash balance. It’s a good thing if your withdrawals are immediately replenished.
• Bank statements: Aside from the balance, deposits, and withdrawals, the bank statement is also critical because it will show information like incidences of overdrafts. You must be aware that overdraft fees charged on your account will be reflected in the statement. If the bank detects this, they might require you to explain why it went into excess. If this happens, it can help if you show supporting documentation promptly.

Personal financial details
The bank also needs all of your personal financial details, which includes social security numbers, assets, liabilities, net worth, credit cards, auto loans, mortgages and many more. For partnerships, it will be the discretion of the bank to demand financial statements from all of the owners who have significant shares.  

Insurance information
The bank needs all the information and records because it’s how they will determine the risk of lending you money. Since it’s all about reducing risks, they will ask you to take out insurance against the death of one or more of the founders. The fine print can also direct the payout on death to go to the bank first to pay off the loan.  

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Clare Louise
Clare Louise

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