What will your bank look out for before processing your loan?

So you are now seriously considering to approach your bank for a much needed boost to buy stocks, purchase a business asset, working capital or just to expand your business? What will your banker look for in considering your loan request?

Banks trade with their customer’s deposits mainly by way of lending these deposits to needy sectors of the economy at agreed interest rates, which can be seen as the Expected rate of return. Between the rate they give on customer deposits and the rate they charge on borrowers is a margin, which can be literally referred to as the profit for the Bank.

Many people mistakenly think that for one to qualify for a bank loan, they need collateral/security, while others think it depends on the amount of deposits/savings in their bank account.

While these factors definitely have an influence albeit little, banks in analyzing your suitability for a loan will look out for the following major attributes:

• Character-There are many people who will borrow money with the express intention of never repaying back. Are you one of them?
• Ability to repay both loan and interest-Even without the loan, can you comfortably meet the repayment obligation?
• Experiences in business-Businesses normally go through cycles, ups and downs and an understanding of these seasons is important.
• Cash flows-whether the business can generate sufficient funds to cater for both its daily operations and also cater for the loan installments. This is determined by account turnovers, stock turnovers, etc
• Repayment/Banking/Credit History-Have you been honoring your obligations in the past and on time? Here even normal bills like electricity, water, rent are critical.
• Security-This is important to be colloquial to cushion you ‘when shit happens’ as it does happen once in a while. The locations, value, are important.
• Amount-Too little or too much?

For the personal loans category, the major requirement would be evidence of salary, terms of employment and for most prudent lenders adherence to the 2/3 rule.

I hope this enlightens you as a borrower or potential borrower on what banks will generally look for before advancing you that much needed loan to boost your business.

Please note that this is just a general guide, as different banks will have different requirements, mainly revolving around these guidelines. It is important to discuss with your bank on the specific requirements before committing yourself.