11. What will a bank look for before agreeing to provide a business loan? A bank will consider the following before agreeing to provide a business with a loan: ¶
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Amount required and duration The larger the amount and the longer the duration of the loan, the riskier it is for a bank. Purpose of the loan The more productive and low- risk the purpose, the greater the likelihood of getting approval. For example, an entrepreneur looking for a loan to open a newsagent’s shop in a town beside a school is likely to be considered more favourably than someone who wants to open one in a small village which already has a newsagent’s. Creditworthiness of the business
A business with a good credit history will be viewed more favourably. Ability to repay This will be shown by cash flow forecasts and profitability of the business. Business plan A well-researched business plan reassures the bank that the money will be managed properly. Security
The greater the value of the security (collateral) provided for the loan, the lower the risk for the bank.
Chapter Review Key Terms Checklist Using a pencil, place a¸in each box to indicate how
well you know and understand each Key Term. q I know and understand this Key Term. q I am still a bit uncertain about what this Key Term means. q I don’t understand this Key Term yet. When you revise each chapter, tick the boxes again to indicate how much you have learned.
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Cash flow is the difference between the money flowing in and the money flowing out of a business or household. q q q
A cash flow forecast shows the expected flow of money in and out of a business over a period of time.
