How knowing potential lender's criteria can help you when applying for bank loans

When you are applying for a bank loan there are many things to consider. If you are considering applying for a loan then you should first determine which organization is the best for you. You should also understand how knowing potential lender's criteria can help you when applying for the bank loan.

Let's first take a look at the different types of bank loans you can apply for and then look at how knowing potential lender's criteria can help.

Secured Loans
A secured loan is a loan that is secured by some sort of collateral. The lender will take a security interest in your property and if you fail to repay your loan, your lender has the right to seize the collateral. Most, if not all lenders will require collateral to secure any small business loan and then in return take a security interest in your business or personal assets. Keep in mind that lenders will not lend you more than 100% of the value of your collateral; 60-80% is a little more usual.

Unsecured Loans
An unsecured loan is exactly what it says it is, unsecured. To apply for this type of loan there is no collateral required but they are more difficult to come by. The lender loans you money based on reputation and credit worthiness, so in this case it is a huge advantage to have great credit. Credit cards are the most common example of an unsecured loan. Because they are so risky, applying for this type of loan is almost impossible unless you already have a good track record with the lender.

Short and Long Term Loans


• Short term loans are usually no more than three years, require fixed payments of principal and interest, and can provide a great source of working capital. They too need to be secured by adequate collateral.


•  A long term loan is a loan that is taken out for more than three years and is usually for a specific asset purchase or refinancing. These loans are secured by assets and usually have rate changes and prepayment penalties associated with them.

Lender Criteria
Each Lender is subject to different criteria depending on what type of loan you are applying for. It is to your advantage to know what they are looking for so that your chances of getting the loan increase. The first thing that Bank Loan providers look for is a proven track record. No one will lend you money if they don't see that, but that is where it becomes tricky. How can you get a proven track record until you get the loan? Well, in order to get the money you need you have to know what the bank is looking for; this is what's called Lender Criteria. Most bank loan providers look at what are called the Five C's.


• Character. What kind of credit history do you have? When you borrow the money are you good for repaying it?


•  Capacity. Experience is what they are looking for here; preferably industry experience.


•  Capital. How much money will you need? Do they know what you need the money for and how it will be spent?


•  Conditions. Otherwise known as terms of the loan. The loan terms should be structured so that it can be paid back without restricting too much of the cash flow.


•  Collateral. What do you have to offer? In most cases they will want at least 30% of your capital need in the form of cash or through some sort of asset.

As a borrower you should know that obtaining a bank loan is extremely difficult unless you are a business with outstanding credit history and a proven track record. But you can see how knowing a potential lender's criteria can help you when applying for a bank loan. Knowing them can help you make a check list of what you will need and that's something to work towards.

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