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Banks are in business for the same reason as your small business
– To make money. Banks make money from fees, deposits
held in your account and interest. This amount must cover
wages, technology and administrative expenses, bad loans and
leave a little for the shareholders.
To ensure the Bank makes money a lender must assess your
business. All the information you provide should support the
following key criteria:
1) Does the business make sense?
2) Can the company repay the loan?
3) What security is held in the event the company becomes
insolvent?
Does your business make sense?
Lenders look at factors such as the type of industry, management
experience and capabilities, business operations, competition,
and marketing plans. A strong business plan addresses each
of these areas.
Can your company repay the loan?
Lenders look at your financial statements to assess the likelihood
for repayment. An income statement shows how you made money,
a balance sheet shows where the money is stored, and a cash
flow projection shows how you will receive and spend money
in the future. Additional proof is provided in the other financial
documents.
What security is available just in case?
A Bank wants to ensure their loans are repaid even if your
company becomes bankrupt. Repayment may come from assets listed
on your balance sheet, owner(s)’ personal assets, Government
guarantees or real estate.
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