If you’re thinking of getting an investor for your business, you should be aware of what lenders expect and their criteria. You have to know these so that you will be prepared and you might just have a bigger chance of getting your loan approved.
Here are the criteria you need to meet in order to get a loan approval:
- Credit – Investors would get a background check of your business and personal credit standing or credit score. You have to know your score from the main business credit bureaus both for business and personal so that you would know where you stand in relation to your credit score.
- Capital – You have to come up with a percentage of the capital you would like to raise. Most investors or lenders would require you to have at least 20% of the loan amount you are requesting before they would even consider giving you the rest. So before making your pitch, you have to make sure that you have enough money in the bank to cover the 20% of the loan. Also, it would be advisable if the money is already deposited in the bank at least 90 days before you apply for the loan because investors would also check on your company’s bank rating.
- Collateral – In order for the lenders or investors to have a guarantee that you will be paying off the loan, they might ask for collateral. You can use your cars, real estate, jewelry and even bonds as guarantee of payment. This would depend on the loan amount you are asking for. The higher the loan amount, the higher your collateral would be and these would only be returned after you have paid off the entire loan.
- Conditions – This might be a little tricky because there are many factors which can cause conditions to change. For example, even if you have outstanding credit rating, you have the minimum capital needed and collateral to boot, if the economic, political and even environmental factors can affect the availability of funds, you still would not be able to get the loan approval.
- Character – You have to have a solid reputation and your integrity should not be unquestionable for you to be able to meet this criteria.
- Capacity – Since we’re talking about money and finances, your prospective investors should be assured that you have what it takes to pay back what you owe them. This means that your experience and other qualifications should show that lending you the capital needed would not be too much of a risk for them.
- Cash Flow – Your investors need to know when they can get their return of investment and the way that they can do this is by checking your cash flow projections. If they see that your cash flow would not suffice for them to get their investment back during the time frame that they gave, then your chance for approval would be slim.