Determine If Your Ready for a Business Loan

Business loans provide a way for a business to obtain funding without having to rely on their own cash flow, or having to liquidate their assets. Before a business considers taking out a loan, a complete review of financial statements should be closely assessed. The business owner must determine whether or not the new loan will add value. Sometimes, loans can create an unnecessary, additional liability, so it is critically important that the business review their financial statements first.

The business owner should review their business plan and review market opportunities available for the business’s products and services. It should also assess the profitability of the business, based on its past earnings, and future income projections.

Review Business Plan

Most banks, and other lending institutions, require businesses to submit a business plan before considering them for a business loan. The business plan can also help clarify what steps are required for the business to grow and remain profitable. It can also uncover the business’ strengths, weaknesses, opportunities and threats.

The business plan should discuss the overall mission and vision for the business. It should discuss its assets, in terms of people, intellectual property and trademarks and other aspects unique to the business. These assets should distinguish the company from its competitors, as well as demonstrate an understanding of the market opportunities that are available.

Keep your business plan current. Review the plan yearly and update financial histories and highlight new ways that your company can grow.

Determine Market Potential

A marketing plan is often seen as an integral part of a well written business plan.  Marketing plans identify the potential for the business in various marketplaces and with many different types of consumers.  Your plan should be well researched and show an understanding of the current or potential market penetration. It should also highlight additional growth opportunities.

Assess the Profitability of the Business

Financial statements, such as income and expense statements, cash flow and balance sheets provide an overview of the company’s finances. Review efficiency at different times of the year for better insight. Financial statements are heavily scrutinized by banks and lending institutions, so be sure that your numbers give an accurate depiction of the health of your company. Remember they will be used to service a loan debt and determine whether the company represents a good lending risk. A bank or lending institution uses this information to determine if a business is financially viable and able to meet their loan obligation going forward.

These determinations should be made prior to applying for a loan in order to increase the likelihood that the financing will be approved.