Loan process - Small Business - Case Study Example

The process therefore is as follows: - Assessment of credit factors: - credit factors are majorly the factors that are considered by the financial institutions or credit providers before they extend their loans to any business venture. It depends much on the amount required and whether you can provide security for the funds borrowed. They include factors such as credit worthiness of the small business. To an extent, this is looked at with reference to Current Assets and Current Liabilities with the business (Harper, 2006).

More assets with less debts means the firm is a going concern and the difference would tell us the extent of liquidity of the business. The business should also consider if it has partners that can act as the business guarantors. Lenders are also very keen on how the funds if given out would be managed. If they detect they would be embezzled then they would rather keep them than give out as loans (Harper, 2006). The second step is the determination of why the small business needs financing: - here, assessment of the current financial situation is mandatory.

The owners should be in the position of knowing whether they are comfortable in their current situation or not, they should also be able to know why they need the cash i.e. for expanding operations or for managing risks, the urgency of the needed money should also be of importance to the owners. The most critical in this part is to know the extent to which finance requirement agrees with the business plan (Green, 2011). A plan is the tool to convince any lender and a small business without this should strive to have one to be in a position to convince investors who may be willing to engage their funds in such ventures.

The third step is the Checklist for Business Loans: this is based on the fact that businesses have diverse areas to obtain funds. This part only helps us decide where to get our loans after considering factors such as interest rates and loan repayment periods vs. the cash flows to be received from the business and the frequencies of such flows. This is dictated by the listing of the business by the business lister depending on their performance in the market (Harper, 2006). The question of whether a loan will be provided from the institution where the business applies from depends on whether a conclusive and relevant document is submitted to the lending agency.

Some agencies normally accept some documents of application and do not accept others (Green, 2011). General documents entail; personal backgrounds of the business, resumes to tell about the business profile, a business plan which is the most fundamental for any financial provider, both personal and business credit reports and lastly a collateral security report and legal documents showing the legal existence of the business (Harper, 2006). The forth step is that the owners of the business need to make a very detailed submission of the business as any information ignored might be of interest to the lender and this may jeopardize there willingness to advance such loans.

With respect to your application, it is also important to state the industry that your business target as well as those which poses threats to your business (Harper, 2006). This again will help your lender to make informed decision regarding the prevailing circumstances on whether to advance the loan or not. A loan application