7 things your bank is going to ask when you need a business loan

by Guest Author on February 9, 2018

in Guest Posts

Have you got a new business idea? You are going to need some investment to start it off. Applying for a bank loan can be an excellent method to get that investment in a short time. But of course, the bank is not just going to hand you the money. They are going to inquire about your ambitions and will ask a lot of questions. Here are seven things that the bank will ask before handing out a loan. Keep them in mind while applying for the loan so that you can get the desired outcome.

Collateral

You need to have some hard assets that you can pledge to back up a loan. The bank is not going to hand you a loan if they think that you won’t be able to return it. This means that small business owners or people who are applying for startup loans have to place personal assets as collateral such as house equities and mortgages.

Your business and financial details

The bank will require a background check on all your previous business ventures. They will check if you have any previous loans and what your debit history is. They will require details of your bank accounts, credit card accounts and student loans, etc. And of course, they will ask for some additional pieces of information such as tax id and contact information, etc.

Your plans

Of course, the bank will inquire about the purpose of the loan. You will have to present your business idea to the bank and if they judge that it can be profitable or not. The bank will not issue a loan if your idea does not seem promising.

Complete audited financial statements

Your financial statement is a list of all your assets, capital, and liabilities. Make sure that you provide a latest and audited version of your financial statement to the bank. This is done to make sure that you don’t have any history of tax fraud or tax evasion. This is standard procedure for all banks.

Insurance information

The whole loan game is about reducing risks. The bank will strive to achieve a transaction that ensures the minimum amount of risk for them. This is why for some new businesses the bank makes the founders take out life insurance policies. So that if in case of the untimely death of any of the founders they are not able to pay off the loan the bank receives the insurance payout.

An agreement upon future ratios/ loan covenants

A load covenant is an agreement according to which the company sets some key ratio with the bank. This is a ratio between time and financials. If your financials fall below the set limit at a set time, then you are in default of the agreement.

Social security

Banks also do background checks on people they are giving loans to. Banks need to make sure that the applicants of the loan don’t have any criminal ties and the money that they provide the applicants with will not be used for illegal purposes. For this purpose, the bank will also require your social security history.

Guest article written by: David Simmons is a financial analyst and accounting expert. He has in-depth knowledge about setting up small businesses as well as creating profitable investments. He regularly contributes articles related to business and loans at https://www.ebroker.com.au/.

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