5 Financial Requirements For A Business When Borrowing Funds
There are quite a number of financial requirements for a business when borrowing capital from third parties (i.e. loans) and today we’ll be looking at some of the main ones.
This is in continuation to our previous post on the Cash Borrowing Tips that we looked at last time.
Before we get started on the 5 financial requirements for a business when borrowing capital, let me point out that although some of these requirements are similar to the Things Small Business Lenders Look For (we looked at them last time), they still stand as financial requirements for a business when seeking funding from external sources.
Let’s now look at which the financial requirements for a business are when borrowing funds.
Financial Requirements For A Business When Borrowing Funds #1: Agree To
The Interest Rate
Unless you’re borrowing money from a non-profit organization (which I highly doubt), you might want to prepare yourself to accept the terms and condition of the interest rate that will be provided to you by the financial institution from which you intend to seek a helping hand from.
The best way to go about this would be to compare interest rates from different financial institutions so that you can pick the one that best suits you. Don’t just settle for the first one that comes along your way or you might later on regret.
Financial Requirements For A Business When Borrowing Funds #2: Collateral
Collateral simply refers to something that is pledged as security for repayment of a loan and which must be in your possession if at all you wish to get a loan from a financial institution.
If you don’t have any collateral to act as security, then getting additional income from a bank or a similar financial institution may be very difficult.
Financial Requirements For A Business When Borrowing Funds #3: A Healthy Bank Account
One of the major financial requirements for a business when seeking additional income from external sources is for you to have a bank account that shows you’re not operating at a loss.
If you’ve got an active account that shows your business has the potential to grow i.e. you’ve got a positive cashflow, then the chances of you getting additional income from lenders is quite high.
Financial Requirements For A Business When Borrowing Funds #4: Periodic Reports
Some lenders (e.g. investors) might require you to periodically submit financial reports of how your business is doing especially when there’s a lot of money involved. Such reports may include:
- Statement of Financial Position
- Income Statement
- Cash Flow Statement
Financial Requirements For A Business When Borrowing Funds #5: Your Business Must Have A Certain Amount Of Income Every Month
Many financial institutions will require your business to be having a given amount of income every month before they agree to loan you any money (In addition to having collateral).
The minimum amount of the income that your business must be generating in order for a financial institution to give you any money is usually dependent on the total amount of the loan that you’re asking for.
My Take On The Above Financial Requirements For A Business When Borrowing Funds
By now I’m sure that the above financial requirements for a business when seeking funds from external sources have given you a rough idea as to what to expect when seeking additional funds for your business
The main thing to always keep in mind is that all financial requirements for a business when seeking funds from external sources mainly depend on:
Being able to show that you have the ability to pay back the borrowed amount
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