5 Qualities Every Lender Looks for in a Borrower

Not every organization is created equally, and you should know that especially if you are establishing your business. Just as you take some precautions with your lender, the lender does same to you. Following are a few things a lender looks for in a borrower. This can help you make yourself look attractive to investors and lenders.


Credit History

Every bank that you approach for a loan is going to review your credit history. So, be prepared to answer a few questions. Remember, they need a personal guarantee that they will get the money back.

Before heading to a lender, you need to get a credit report about yourself and business. If you have any issue, you can deal with it before heading to the lender. So review your credit report and if your business is a bid old, get a credit report for it.

There is a difference between consumer credit and commercial credit. SO, make sure you check both of them out before heading to apply for a loan.

Loan Collateral

Just because a loan plan doesn’t need you to put something as collateral doesn’t, it won’t want to. Companies have an easy time if you get some security. They have a better sense of security knowing their money is safe. So, before you head off you need to better learn about your collateral options

When a lender wants security, then minimizes the risk of extending credit. Short-term assets including inventory are not accepted as security. However, they can help you get a line of credit as an instant financing option.

Protect the Collateral

Security interests are carefully recorded along with collateral. This is because the creditor wants to get a priority claim against the collateral securing the loan. If the collateral is a piece of land, you better prepare a report that mentions any defects or other such issues.

When you are starting a business, real estate is often used as collateral. However, you can retain the title of the property until you pay off the debt.

Loan to Value Rating

In an attempt to further secure themselves, lenders discount the value of collateral, so they don’t extend a hundred percent of collateral market value. The difference between the amount of value against the value of the collateral is a loan to value ratio. This collateral is used to secure the loan as to meet the criteria of your lender’s loan to value ratio.

Undeveloped properties have a low value to the ratio as compared to developed ones. But you can also secure yourself by putting up other valuable assets such as gold, or other such artifacts.

Character

Just like you search for best banks for business loans, your lender does a quick research about you to understand if you are a potential borrower or not. Everyone can use the extra money, but how can they repay. It's not always about collateral because selling it to recover loses doesn’t do good for their brand image.

So, your lender will research to see if you have previous experience, referrals, references from valuable individuals, community, and evidence of your efficiency.




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