Business Credit Evaluation :: GCSE Business Marketing Coursework

Business Credit EvaluationCredit Review SummaryWhat Banks Look ForThe most(prenominal) fundamental characteristics a prospective lender allow for want to examine be - credit history of the borrower - bills flux history and projections for the disdain - collateral that is available to secure the add - character of the borrower - loan documentation that includes business and personal financial statements, income tax returns, and frequently a business plan, and that essentially sums up and provides evidence for the first four items listed The first lead of these criteria are largely objective data (although interpretation of the numbers can be subjective). The fourth item, the borrowers character, allows the lender to make a more subjective appraisal of the businesss market appeal and the business savvy of its operators. In assessing whether to finance a small business, lenders are often willing to consider individual factors that represent strengths or weaknesses for a loan. Also consider our discussion of how banks judge your application. Loan Application, Bank Review Form What Do Banks Really Look For?Financial Statement closing 3 years of business financial statements and/or tax returnsLast 3 years of owners personal tax return ongoing personal financial statementCash Flow from OperationsWhy is there so much month left at the end of the funds? X UnknownThe cash flow from your businesss operations X the cycle of cash flow, from the purchase of inventory through the collection of accounts receivable X is the most important factor for obtaining short-term debt financing. A lenders primary concern is whether your daily operations will generate enough cash to repay the loan. In addition, cash flow shows how your major cash expenditures relate to your major cash sources. This information may give a lender insight into your businesss market demand, management competence, business cycles, and any significant changes in the business over time. While a vari ety of factors may affect cash flow and a particular lenders valuation of your businesss cash flow numbers, a small community bank might consider an acceptable working cash flow ratio X the nitty-gritty of available cash at any one time in relationship to debt payments X to be at least 1.151. As most lenders are aware, cash flow also presents the most troubling problem for small businesses, and they will typically require both historic and projected cash flow statements. Managing Your Cash FlowA healthy cash flow is an essential part of any successful business.