The need for expansion, cash flow shortages, payment of wages and salaries, and more are some considerable reasons that might compel you to take out a commercial bank loan. However, commercial banks don’t simply advance loans to people that need them on demand. There are certain preconditions you must meet to have a successful business loan application.

Your financial statement, personal and business credit score and history, cash flow, collateral, and more are fundamental factors your bank will assess to determine whether you qualify for a loan. Unfortunately, most small business owners fail to get bank loans, as meeting some of these banks’ requirements is pretty challenging. Not getting funding for your small business when needed heralds failure. And no one has ever run a successful business without a stable financing source.

Read on to know in detail what banks usually check out before accepting your business loan application and if alternative financing like Financing Solutions’ line of credit can be your desirable financing solution.

Financial Statement

Banks often rely on financial data to determine your business’s performance over time in order to know whether they can approval a business loan. Your financial statements are written records showing your business performance and financial outlook. These documents are often audited by government agencies (tax returns), accountants, and others to ensure accuracy for financing and other investment purposes. In fact, your statements are the metric for gauging the strength of your company’s cash flow. It is one the most important reliable resources that offers an accurate financial overview and tells banks whether your business is creditworthy. Your financial statements include the

  • Balance sheet
  • Income statement
  • Cash flow statement

Balance Sheet

This aspect of your financial statement gives an overview of your business assets, liability and shareholders’ equity capital, total debt, and more at a particular point in time. In other words, it is more like a snapshot of your business’s financial position at a specified time. It’s usually calculated after every quarter, six months, or one year. Your liabilities must tally with your assets for your balance sheet to reflect true pictures.

Income Statement

Your income statement shows your company’s income and expenditure. It shows whether your business records profit or loss for a given period. However, unlike the balance sheet, the income statement covers a range of time, from quarterly to a year.

Cash flow statement

A cash flow statement is a financial statement that provides the overall data concerning all cash inflows into your business as a result of its operations and external investment sources. It also captures cash outflow that finances your business activities during a given period.


Banks need a guarantee that they will recoup their money regardless of what might happen. Collateral is an asset that a bank accepts or any financial institution accepts as security for a loan. Collateral may be in real estate, stock, bonds, and more. In case of the borrower default, the collateral will serve as protection to the lender. In other words, the lender can sell the collateral to recover their losses if you default.Business loan requirements

Credit History and scores

Your credit score shows your level of creditworthiness, and the higher your score, the more chance you have of securing a bank loan. Most banks will want to see a 720 or better personal credit score from all business owners/partners. Banks evaluate your business and personal credit score to ascertain the probability that you will repay the loan on time. Your credit score is based on your credit history, which entails your open accounts, total levels of debt, and repayment history, among other things.  

Your personal and business credit history measures your ability to repay debt. Your credit history is recorded in your credit report, which outlines the number and types of your credit account. Keeping a good credit score can help facilitate your loan application.

Cash Flow

Your business generates money from sales and spends money on expenses. 

Cash flow measures the net amount of money that comes and goes out of your business. The cash you receive represents inflows, while the money you spend to run your business is the outflows. Ideally, your inflow should be more than outflow for you to have a healthy financial outlook. 

Proposal for the use of The Loan

Apart from your business’s financial concerns, another factor that may affect your loan application is your application and business plan. Your application and business plan should be able to convince your bank why they should grant you the loan. Therefore, your application and business plan must be compelling and outlines how you will strategically invest the money you are taking out from the bank.  Your loan proposal should include the amount of money you want to borrow, your business profile, the reason you’re borrowing the money, and how you intend to repay.

The most misunderstood part of applying for a business loan or business line of credit with a commercial bank is that commercial banks will approve a brand new company based on your “great” idea. Banks don’t really care about your idea. They care about current cash flow, past financial performance, credit scores, and collateral.

Current Market Conditions

Market conditions mean the viability or otherwise of your market niche at a specified time or how the overall economy is performing. If there is a recession then banks will be much more stringent in their approval process for new business loans. In other words, it refers to external factors that are beyond your control that might negatively affect your business cash flow. A negative market condition means that you might have difficulty having a successful loan application from a bank as a result of higher risk. 

Every bank may have parameters for evaluating your company’s creditworthiness, however,  the above factors are the common criteria for assessment. Ensure your business doesn’t fall short in any of the variables mentioned above if you want to secure a loan for your business from a commercial bank in the future.

Are You In Need of a Business Loan? Financial Solutions Can Help!

Getting a bank loan can be difficult, especially for small business owners that cannot meet all the associated rigid requirements. Not satisfying the loan criteria means your business risks failing when you don’t have extra cash or additional go-to external financing source. 

Unfortunately, this has always been the case in the past, before Financing Solution came to provide financial solace to small businesses that struggle with financing.

Financing Solutions provides easy-to-setup unsecured business lines of credit for small businesses. Our business lines of credit with instant approval require no collateral or personal guarantee, which makes it an excellent alternative to a traditional bank loan. Small business owners use our credit line as their cash backup plan because it costs nothing to set up, nothing until used, and when used, it is inexpensive because it is often used for a very short period of time. 

The unsecured small business lines of credit we provide help small businesses address emergencies or take advantage of strategic investment opportunities. Fill out the no-obligation, 2-minute business line of credit application here. The time to set up a credit line is when you don’t need it so that it is ready to be used, just in case.