Factor To Consider Before Taking A Loan

The first factor that all the banks will look into is the ability of the borrower to repay the loan. So, banks will take into account the sources of repayment. If you are taking a loan for a business then the bank will take into account the cash flow that the enterprise can generate. The banks will also take into account another source such as collateral.

The bank will also go through the borrowers past financial record. If the business has been profitable and it can cover the debt then the bank will approve the loan. In case the business has not enjoyed success in the past as the borrower needs the funds to grow, then the bank will ask for a detailed explanation on how the loan can be repaid.

Good business credit is essential as no bank will bet their resources on defaulters. Sometimes, banks will also analyse the personal credit of the borrower. That is why before applying for a loan make sure that your credit record is good.

Your credit report will carry your credit ratings which you will have to submit to the bank. The bank will evaluate and depending on it you will receive the loan. However, different banks evaluate the credit report differently. If one bank rejects your loan application you may find another bank that would evaluate the report differently.

Your credit ratings will be a combination of a number and letter. The most important is the number; the letter denotes the type of credit. If you are rated ‘1’ then you have the perfect score. This means that you have paid all your bills in time. If you are rated ‘2’ or ‘3’ then it means that you have paid your bills two to three months late. A ‘9’ rating will mean you have defaulted on the bills and it will become very difficult to obtain a loan. It is always better if you take the help of an accountant to interpret your credit report.