Applying for and obtaining loans is an essential part of running a business.
When you apply to a financial institution for a business loan, you need to know and be able to communicate a certain amount of information.
The three main aspects you need to emphasize to the lender are: management, cash flow and profitability, and collateral.
Management is undoubtedly the factor that most interests the financial institution concerned.
The strength of the company's management will determine, to a large extent, your ability to generate sufficient cash flow to repay the loan. The lender will examine your business background to determine whether you have the ability to run a business and generate profits.
Cash flow and profitability
This refers to the company's ability to generate sufficient funds to repay principal and interest, while leaving enough money in the coffers for day-to-day operations.
Guarantee: Personal surety
The quality of the collateral offered as security for the loan is also important, because in the event of default on your part, the lender will want to be able to seize assets of sufficient value to apply the proceeds of their sale to the settlement of the loan balance.
Some lenders have recently adopted new criteria that rely heavily on an assessment of the company's management.
These lenders tend to place less emphasis on collateral and more on cash flow. When assessing collateral, particularly in the case of SMEs, they focus in particular on checking the creditworthiness of management. In their view, if a person manages his personal finances well, he will also manage his company's finances well. As a result, they will require less collateral.