What financial institution looks out for when approving a SME business loan in Singapore
When applying for a SME financing from a financial institution, it is important to understand the criteria that lenders use to determine creditworthiness. These criteria include profitability, positive cash flow, and the overall business model. Profitability is one of the most important factors that lenders consider when evaluating a loan application. Financial institutions want to see that a business is generating enough revenue to cover its expenses and is able to turn a profit. This is a good indicator that the business will be able to repay the loan in a timely manner. Lenders will often request financial statements, such as income statements and balance sheets, to evaluate a business's profitability.
Positive cash flow Another key factor that lenders consider is positive cash flow. This refers to the amount of cash that a business has available to meet its financial obligations. Lenders want to see that a business has enough cash on hand to cover the loan payments, as well as other expenses. Positive cash flow is a good indicator that a business is able to manage its finances effectively and is less likely to default on the loan.
Business model The overall business model is also an important consideration for lenders. This refers to the way a business generates revenue and the potential for growth in the future. Lenders want to see that a business has a solid plan for generating revenue and is able to adapt to changes in the market and it can include current projects on hand, and additional contracts acquired. They may also consider the industry in which the business operates, as well as the competition.
Additional key factors In addition to these criteria, lenders may also consider other factors such as the credit score of the business owner(s), the length of time the business has been in operation, and the amount of collateral that is available to secure the loan.
In conclusion, when applying for a SME business loan from a financial institution, it is important to understand the criteria that lenders use to determine creditworthiness. By understanding these criteria, businesses can better prepare themselves for the loan application process and increase their chances of being approved.
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