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The assessment of a funding application

August 31, 2020

Do you want to take out a business loan ? Then it is necessary to submit a financing application. Banks impose all kinds of requirements on entrepreneurs before they approve an application for financing. This can make getting a business loan a long-term process. In the assessment of a funding application, five main points are generally considered:

  • The entrepreneur
  • The enterprise
  • Profitability
  • Solvency
  • The liquidity
  • Certainties

The entrepreneur and the company

Does a bank lend money? Then it is important for the bank that the money is repaid including interest. Therefore, the viability of the company is of great importance. To assess this viability, the entrepreneur and the company itself are first looked at. What are the strengths and weaknesses? In which industry does the company operate? And what are the opportunities and threats? Since the financial crisis, the term 'good entrepreneurship' has become increasingly important. Is the entrepreneur able to absorb financial blows with private assets? What developments are there in the industry? Whether a financing application is approved or rejected depends on the viability of a company.

What is Profitability?

As an entrepreneur, have you passed the test of 'good entrepreneurship'? Then the bank looks at the profitability of your company. Profitability indicates - the word actually says it all - whether a company is sufficiently profitable. In other words, the profitability shows how much profit has been made with the invested capital . Do you want to take out a business loan? Then the bank would like to see that your company makes sufficient profit in the long term. In general, the higher the profitability, the more attractive the company is for investors.

What is Solvency?

Your financing application will not survive with only a high profitability ratio. The bank would also like to see that your company can absorb financial setbacks - in both the short and long term. You can show the bank that you have sufficient long-term buffers by means of the solvency ratio. Solvency shows whether a company can pay off its debts in the event of bankruptcy . On the basis of solvency, lenders can assess how much risk they run when they invest in the company. The ratio shows to what extent the company is dependent on loan capital. Read more about solvency .

What is Liquidity?

By means of solvency you show the bank whether your company is able to meet long-term payment obligations. Nevertheless, banks are also interested in the short term. The liquidity indicates whether your company can repay all short-term debts . The bank assesses whether the company has sufficient liquid assets to meet all short-term payment obligations. In short, liquidity indicates how much money is in the cashier or on the bank account.

What are securities?

Are the results of the calculations for profitability, solvency and liquidity sufficient? Then banks will be more inclined to provide a business loan. Yet there are always risks involved in lending money . In order to limit these risks as much as possible, banks ask for collateral . As an entrepreneur, are you no longer able to meet the payment obligations? Then the bank can always fall back on these securities .

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