Decoding the Credit Assessment Process for Getting Business Loans

Decoding the Credit Assessment Process for Getting Business Loans

Do you want to apply for business financing? Are you thinking of getting funding for your entrepreneurial venture? One of the critical factors that influence the approval of your loan application is credit assessment, even for startup business loans. It’s when a lender performs a detailed credit analysis to assess if the borrower can pay off the loan. On that note, let’s understand credit assessment and how it works.

What is Credit Assessment?

Credit assessment is a loan approval formality that a lender conducts to check the borrower's creditworthiness. In short, it evaluates the borrowing power of a customer and the borrower will be able to service the debt on time or not. This includes the principal amount and interest, which is the main source of profit for the lender. Credit assessment is like a risk analysis, where the lender evaluates myriad risk factors associated with funding a borrower.

How does Credit Assessment Work?

Given here are some of the factors that determine the creditworthiness of a borrower. Let’s explore: Business Income The business income and profitability is one of the most relevant factors a lender consider to assess the borrowing power of a borrower. The lender considers the business income, profitability and other facets of financials to arrive at a loan amount suitable for the borrower.

Credit Score Your credit score is another thing that a lender checks when evaluating your loan application. The credit score is a detailed history of borrowing and paying debts timely. It considers your credit card payments, mortgages, car loans, personal loans, and bill payments. If you have been paying all your dues diligently, your credit score will be good. In that case, there won’t be any issue in getting approval.

If you have never borrowed money or paid any credit card statements or bills, it can cause a low or poor credit score. However, even with a poor credit score, it's possible to get loan approval. In that case, the lender will look into other factors to assess your creditworthiness.

Trading History The lenders also consider the trading history of the business, meaning how many months or years it has been operating. If you are a new business with a few months of trading history or no operational experience at all, it does not mean you are not eligible for the loan. In that case, you will have to look for a lender ready to offer you a loan with minimal trading history. The lender will look at other factors to assess your credibility and that of your business.

Sales Projection This makes more sense for businesses operating for a while, but even new companies can provide sales or profit projections to the lender. The latter will insist on getting the sales projections from the business plan as a part of their assessment to assess creditworthiness. They will see where the money is going, how much the business expects to earn from the same, and how it will drive growth.

Conclusion

If you are planning to apply for short term business loans or conventional business financing, it’s essential to score high on the credit assessment. There are different ways that you can increase and improve your creditworthiness. You must be aware of your present financial situation and keep your options open.

You can also get help from finance brokers like Broc Finance. It is the leading finance brokers in Australia, facilitating business loans for small businesses, startups and enterprises. Check out the website if you are planning to apply for business financing.