Entrepreneurs are mostly in the need for a Fast, affordable finance to help their business in forms of business loans. There are many factors that determine the approval of a business loans. However, the top 5 among the list are mentioned below:
Size of Loan
One import factor for approval of business loans is the size of the loan. The average approval rate for a small business loan is higher when compared to bigger business loans. Another factor to determine the approval of business loan is the size of the interest rate offered for the loan is high for smaller loan than the bigger loan. This is because smaller loans will be repaid at a faster rate than larger loans and there is less risk in lending for the lender.
Credit Score
A credit score is a number that reflects the likelihood of you paying credit back. Lenders like banks and credit card companies will look at your credit history when they calculate your credit score, which will show them the level of risk in lending to you.
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All applicants who have good credit score can walk into any bank to get business loans. The name and scoring systems may differ from country to county. But the underling system looks at your ability to repay a loan depending on numerous factors. Like, how disciplined you were in repaying your previous loans. The better you score is you can avail more benefits and the interest rate will also depend on the same.
Years in Business
The longer a business has been in existence the more is the probability of getting a loan. Irrespective of what type of business it is, the minimum operation period is looked at when you apply for a loan. More is merrier in terms of the number of years a business has successfully sustained itself before you apply for a business loan. Many banks and financial services look for at least two years or more. Also learn 3 Important Principles Every Timeless Business is Built Upon
Monthly Revenue
Return or income is always a key factor for any type of loan. For business loans the consistency is a main factor. All business has different revenue at different period, but having a consistency is crucial. The average daily balance is analyzed by banks to determine the loan amount and repayment capability.
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They also look for the reasons for which you are taking a business loan. The creditors prefer to lend you a loan to boost your cash flow, buy new equipment, grow your business, cover a one-off cost, hire extra staff over refurbish offices and premises.
Security & Collateral
It is the security that is pledged with a bank to avail loan, the more the collateral value is, the benefits are more. This gives a security for the banks to offer bigger amount as the risk is low. The different types of collaterals are deposits, home equity, gold, investment real estate and equipment.
Best Way to Compare Business Loans
Before making the final decision on your business loan provider, make sure the various factors are compared among banks and other financial institutions. The factors that should be considered are interest rate, processing fee and other charges, EMI, which type of interest rate method is used, what are eligibility criteria, is there a need for collateral or not. How reliable the loaner is, what minimum requirement criteria are and so on.
Word of Caution
Usually banks require huge amounts of paperwork and make you jump through a lot of hoops to apply. Traditional bank loan approval rates are currently less than 50%. Not only that but it can sometimes take weeks, if not months to get approved.
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Don’t fall prey for the lure of quick and easy loans. As there may be a loan shark waiting for you to bite the bait for higher interest rates and charges ruing your business and life. It is difficult for business owners to obtain business loans, so always verify the background of the lender before you take any loan.
