How Banks Evaluate Business Loan Requests Essay

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Developing an impressive package for requesting a business loan is exceptionally valuable in increasing the chances of sailing through the evaluation process. However, few business owners know what goes on after presenting a loan appeal for assessment by the lending officer. A loan request consisting of an articulate business plan increases the response rate from bankers. When banks are evaluating loan requests, they normally consider the character of a business, its capacity, and security or collateral (Lister & Harnish 1995).

Character involves assessment of the monetary condition, credit record, and loan settlement record of a business. Another aspect considered in assessing the character of a business is familiarity with the nature of business in need of financing, the height of accountability, and appropriate business administration instruction (Lister & Harnish 1995). The capacity of a business influences the results of the evaluation process. A bank will more often than not consider the income of a business. The income of a business should provide the primary resource for reimbursing the loan. A backing for income is necessary to incase a business fails to generate profit. This leads a bank to consider the securities provided by a business. The use of securities encourages borrowers to repay loans for fear of losing anything presented for collateral (Lister & Harnish 1995).

The basic process followed by banks in evaluating a business loan request has five steps. The first step is determining the purpose of the loan. The second step is assessing the credit history of a business. The third step is assessing the income of a business. The fourth step is evaluating the securities offered in the loan request. This may include guarantees. The final step is drawing a covenant between the lender and the borrower (Lister & Harnish 1995).

References

Lister, K & Harnish, T 1995, Finding Money: The Small Business Guide to Financing, John Wiley & Sons, New York.

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IvyPanda. "How Banks Evaluate Business Loan Requests." May 3, 2022. https://ivypanda.com/essays/how-banks-evaluate-business-loan-requests/.

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