Qualifications Banks/Lenders Consider When Processing A Business Loan

Business Loan | LoanOne

Are you looking to apply for a business loan but aren’t sure what is required of you? Understanding the factors that banks other lenders take into consideration when processing a loan can help you make the most out of it.

While every lender wants to minimise risks as much as possible, several legal stipulations require them to make a responsible decision when processing and approving loans. This is particularly enforced with lenders that impose stricter compliance requirements for users, – online lenders for example.

For this reason, banks and other institutions use the same formulae when processing loan applications, hence there is no need to be afraid.

Lenders/banks consider the five C’s of credit when processing a loan. These C’s help them determine whether you qualify for a business loan or not. The 5 C’s are collateral, character, capacity, conditions, and capital. Each of these factors plays a crucial role in the loan application assessment.

1. Character

Lenders need to understand your character first before they can approve a loan application. To understand this, they have to dig deeper into your past financial activities including loan repayments, savings, your credit score, and your experience in the industry (number of years in business). Among other factors, the banks/lenders want to evaluate your ability to save, income stability and strength, cash flow, and prompt debt repayment. Other factors include bankruptcies, legal actions against you or the business, and defaults. Any record of the factors outlined above puts a massive dent in your ability to repay future loans.

Banks, among other lenders, won’t however, approve business loans for individuals with ATO debts, regardless of set payment plans. Be sure to put these into consideration before applying for any business loan.

2. Collateral


This is one of the critical requirements for secured loans. This usually is in the form of tangible assets. This can be a commercial or residential property, vehicles, land, and other valuables. The lender will under most instances want to assess the suitability of these assets, their location, their current condition, and if they can be sold to cover for the costs. Assess the condition, value, and liquidity of any assets you wish to use as collateral before turning in the business loan application. You don’t need collateral for unsecured loans but be prepared to pay a higher interest rate for this.

3. Capacity

Lenders need to look into an applicant’s ability to repay a loan before approving it. They will, therefore, have to look into your existing debts, income, dependents, and living expenses to determine this. It would, therefore, be advisable to consider your income flow, revenue stability, ability to pay, and contingency plans should your financial situation change before applying for a business loan.

4. Capital

Lenders need to assess your capital when processing business loans as well. They have to consider one’s overall financial status, nature of liabilities, and liquidity of assets before approving or disapproving the loan. You, therefore, stand a better chance of having the loan approved if the collateral or assets can be liquidated fast enough to meet the obligations at hand.

5. Terms and Conditions

There are set terms and conditions (by every lender) that you should agree to before applying for a business loan. Some of these terms include interest rates and fees, repayment schedules, and anything else related to the loan before it is granted, and during the life of the loan. It is advisable to go through the terms and conditions carefully and ensure you have understood them before agreeing to the same or submitting the application.

Questions you might have/need to answer when applying for the business loan

What do you need the loan?
How much do you wish to borrow?
How soon do you need the money?
For how long do you need the money?
How will you repay the loan?
Define the risks involved with lending you money?
What is your backup plans should the loan be denied?

The process of applying a business loan is a rather intimidating one. It can, therefore, be frustrating if your application is turned down, and especially if you had to wait for months for the loan to be processed.

While a secured loan would be a welcome financing option, you can still evaluate other viable financing options as well. An unsecured (online) loan is a good example and perfect alternative to bank loans. Unsecured business loans are recommended for businesses without a proven record of accomplishment or any assets they can liquidate for that matter.

Some of the best online loans process and approve unsecured business loans within 24 hours. Applying for the loan only takes 10 minutes of your time. Once approved, the funds are transferred to your preferred account immediately.