Loan is often availed by the business houses for meeting the financial requirements of the business. Several types of loans are available depending upon the purpose of the businessmen. Secured and unsecured loans are the most popular forms of loans.
Getting a loan approval involves submission of several papers and frequent meeting with the bank officials. Quite often the loan approval may get delayed leading to lot of issues in the running of the business. In many cases the business houses may opt for invoice discounting to get easy finance to meet the immediate financial needs. The following are the several factors that the lender may look for sanctioning the business loans.
Ability to repay
The primary element that the lenders look for is the income levels of the receiver. The repayment ability of the loan applicant is analysed by the lenders through their books of accounts. The banks and financial institution may ask for the financial statements and other taxation papers. This will help in analysing the profit levels of the organisation and so they may get an idea about the credibility of the businessmen. In case of the invoice discounting the corresponding invoices and their repayment ability is analysed. The credit history of the business is completely understood which is a meticulous process undertaken by the lenders.
The next major aspect that is often required for most of the loans is the security. The unsecured loans are mostly lent only for corporate giants and most of the small business houses may be asked to submit some form of security to the loan. This helps in reducing the risk levels of the banks and the lenders to mitigate the loss in case of the default made by the businessmen. However, the value of the security is decided by the lenders which again depend upon the nature of businessman the levels of risk. Unlike the salaried personnel who are scheduled to get a regular income the businesses profits are prone to market vulnerabilities and so the risk tends to be very high.
The funds required by the business are also considered. In many cases the banks may provide several options for repayment and the interest also differs accordingly. Some are LOC loans wherein there is arrangement with the banks to provide short term funds to avoid any kind of cash crunch situation. These are charged at lower interest rates. So the capital required and the purpose of the same is considered to categorise the loans.
Apart from the above there are several other factors that are looked like the repayment schedule, business expansion plans, and partners of the business and so on which all form the basis for loan sanction.