Are you seeking a personal loan to expand your business? Do you need finance for buying more equipment for your business? Well, applying for a personal loan can help you solve all your financial problems but how you convince a bank or a lending institution to give you a personal loan is totally up to your awareness of the essential criteria.
Lending services can be a quick and effective way to cater to your every type of business needs whether it is for starting a new venture or consolidating debt. But getting personal finance from a bank involves a complex procedure with the significant steps of customer verification which conclude your overall result.
Here we are sharing a few things that are considered by the banks when reviewing or scrutinizing the personal loan applications of the borrowers. Let’s have a closer look:
Five Cs That Banks Look For Before Approving A Personal Loan To The Applicant
To qualify for lending services, you need to ensure that you fulfill these below-mentioned areas that are considered by banks known as five Cs. If you or your business lack in any of these areas, obtaining a loan may end difficult for you.
What is Five Cs?
1. Character of Applicant - Before approving the applicant’s loan application, the banks will have a thorough check on the company’s history, its references as well as the market reputation of your firm. If the bank detects a slight doubt in you or your company’s overall character, they will not approve your loan request. On the other hand, if you and your business have an outstanding credit history, as well as a good reputation and genuine references, the chances of getting approval are higher.
2. Demand of Collateral - In some cases, many lending services require collateral or security from the applicant to protect their debt loss in case the buyer is not capable of paying the debt. This security helps the bank in determining the borrower’s capability to pay the loan amount. The type of collateral that a bank can ask for depends on the available assets such as properties, business assets, equipment, vehicles, and current account savings, etc. The collateral acts as a way to recover their loan in the event the borrower fails to pay the debt.
3. Capacity Of Repayment - Apart from your company’s overall character and collateral, the bank also verifies whether you are capable of paying the loan before approval. For this, the borrower is required to give a letter to the lending bank allowing them to check your credit history. The banks then verify your repayment history through the records along with the amount of debt you have currently. It reviews your income and calculates your debt service coverage ratio.
4. Capital Requirements - The banks show their more confidence when the applicant has his own money invested in his company/firm since they get an assurance to be paid on-time. The bank will check your financial history and capital along with the records. In case the bank finds a loophole in your overall invested capital, it can decline your loan application. It will also figure out how much capital you have invested in your company as it determines the success of your business.
5. Economic Conditions - Besides analyzing the borrower’s capital, the banks also have a keen eye on the overall economy, industry trends, and the movement of politics as these are the things that are beyond your control. Even if your company fulfills the required areas of capacity and collateral, but if you are operating in a high-risk industry, there are chances that the banks may reject your application. To eliminate this risk, you must try to overcome the economic crisis and present your ability to fight against any opposite situations.
Apart From These Five Cs, There Are A Few Other Important Factors That Are Considered By Banks Before Lending Money. They Are
- Credit Score - Another thing that a bank looks at while evaluating an applicant’s request for a loan is your credit history and score especially for a salaried professional. A good credit score above 700 can help you get a loan at low rates.
- Current Income Source - Bank also looks at the other factors like your existing source of income along with your monthly expenses.
- Occupation History - A good occupation history is also taken into account as proof of your income and stability.
- Purpose of Loan - You will be asked to disclose the purpose of your loan. If it is a high-risk loan, the bank can reject your application or charge a higher rate of interest.
If you are also looking for safe, reliable, and instant lending solution services, there are several alternatives other than banks. Emerio Banque is a private financial institution offering a range of international trade finance service, lending solutions, and transactional services as well as banking and finance at affordable rates.