It is just two simple words “business loans.” But the things that you need to go through to get these loans from banks is something that cannot be described in worlds. Of all the loans that the bank offers, business loans are the ones that are very hard to get.
One has to pass a lot of hurdles to get the loans approved, and it is not an easy task. There are a lot of things that the banks will ask when you are applying for a business loan. In this article, we will see them in detail.
The first and the most important thing that the banks will ask for is the collateral. It is because there are good possibilities that the business is of a huge amount. Hence it is important for the banks to have solid and reliable collateral.
You might be new to the business. But you need to understand the fact that they have been there for many years. By seeing the business plan, they can judge up to a certain level about the success of the business. If they are impressed by the business plan, there are good possibilities that the loan will be approved.
The finance details
It is mandatory that you need to provide all the present and past financial details. If you have any debts or bad payment history, it is very difficult for you to get the loan. The financial details include bank account statements and credit card bill statements.
The banks while lending the loans they look for all possible ways to reduce the risk. If at all you do not have any insurance, the banks will insist you take life insurance in case of some unfortunate events. The nominee for the insurance that you will be taking is the banks. So if you die the insurance amount will come to the bank.
You will have to provide the bank with the complete personal details with all the proofs. The personal details include address proof, identity proof with an attestation. There are also a few banks that you ask you for criminal history. It is mandatory that you have a clean past. Or else there is no way that your loans will get approved.
Agreements on future ratios
The majority of the commercial loans include a special thing called the loan covenant. So the loan covenant means the company agrees to have some key ratios. They are quick ratios, current ratios, and debt to equity. For example, if there is a situation in the future where your financials come below a certain level, then it will be considered as a default of the loan. There are good possibilities that it might confuse you. It is because this loan covenants is a huge thing and will take a lot to understand it properly.