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Typical Requirements Needed To Secure Business Credit at a Bank

Published 9/19/2012

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Over 15 years in business
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If you are a business owner and are going to apply for a bank loan, you may want to know upfront what the basic requirements are for getting business credit from a bank.

There are usually two types of loans made to businesses, secured and unsecured. A secured loan will require assets or collateral to be pledged from the business, and if that's not enough it may require personal assets from the business owner. An unsecured loan is typically smaller and is based on credit score, cash flow history and business trade references.

There are several factors considered by banks in making a decision on your loan request.

Collateral

Assets like savings accounts, real estate, inventory, equipment or accounts receivable are all considered to have value.

Personal Character

Personal credit history will tell a bank a lot about what kind of borrower you will be like. A positive and strong credit history will determine how you will treat future liabilities and repay financial obligations.

Business Credit

A bank will likely want trade references from vendors that you currently deal with and a good standing with any financial institution that the business has credit with. Lack of credit or no credit is going to be difficult for approving a loan. Try to have at least 5 sources of credit from a financial institution such as credit cards, auto loans, mortgage loans and perhaps other small business loans in the past.

Business Cash Flow

Cash Flow is a vital ingredient in approving a loan, a bank will determine if your cash flow is substantial enough to make payments since it will be the primary repayment source. Cash flow is calculated by adding the company's net profit and its non-cash expenses such as depreciation and amortization. A common formula used by some banks in debt to income is $1.00 of liabilities to $1.50 of income (Cash Flow).

Asset Conversion

A bank will look at the possibility of your business going down, and they will consider the assets that you have pledged as collateral as an exit strategy to repay the loan. Most importantly, are the assets easily converted to cash for repayment.

Years in Business

Most banks like to consider loans for companies with at least 2 or 3 years in business with complete financials and trend analysis.

Liens

You should know beforehand if there are any liens already placed on the business. For example a small SBA loan can be encumbering all assets, or a judgment, lawsuit or taxing agency. These liens will have to be addressed at the time of the loan to either pay down or pay off in order for the bank to have full 1st position lien rights to the business assets.

Profitability

A quick way to show profitability is tax returns. Financial statements are always good to have current and accurate, preferably done by a CPA.

Every bank may have less or more considerations, but we believed the factors mentioned above is a good base to start with.

1st Commercial Credit can provide interim financing for your business using only your accounts receivable as collateral. Account receivable factoring is not regulated like a bank and a credit facility can be establish in approximately 5 working days. There are no up-front fees and no financials required to set up an account.

To generate the most working capital, consider factoring accounts receivable rather than borrowing against them. Not only is factoring fast, flexible, and more affordable than you'd expect, but as you experience growth in your accounts receivable, there is no nasty confrontation with a banker when you need additional funds. As your eligible receivables grow, so does the amount of cash available to your company. In factoring, there are no loan committees, regulators, government bureaucrats or auditors determining your fate. Access to cash is fast and premised only on the quality of your customer's credit—not yours.

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Starting At 0.69% - 1.59% Or Prime +2% & Admin Fee

  • Quick Approval Process!
  • No Financials up to $350k
  • Easy Set-Up in 3 to 5 Days
  • Over 15 years in business
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