Chanh Ngo 1 year, 4 months ago
Qualification of business loan
We are considering acquiring a business property.
We’ll put about 30% down payment, the rest will be financed (about 450,000).
We are in the retail business since 1989, and have never been late for rental payment.
Since our current business location is getting lesser and lesser visitors, and our business hurts, thus getting negative income in the last few years.
The new location we are looking forward to is much better and getting well known to the local community. We did some calculation, the monthly mortgage payment of the new property will be approximately equal to our current monthly rental payment, so we think we’ll be able to make the mortgage payment without problem.
The question is, with our recent years business loss, will it be harder for us to get a business loan in the amount of $450000?
My wife is the store owner and she manages her business, I’m working to get healthcare coverage.
Another unfortunate event happened late last year, I was laid off from my then employer and just returned to the work force 3 months ago with much less salary.
In such a situation, do you think we’ll be able to secure a loan with any lender?
What are our chance of the loan approved?
What are our options if the normal loan process fail due to “not yet profitable business income” like us?
Do you have any suggestions for us?
thanks in advance.
Chanh Ngo2 Replies
Kent ThuneMember1 year, 4 months ago
I work on the business finance team with Jeff and I’m happy to help. Since you’ve never missed a payment on your debt, it sounds as if your credit score may be high enough to help your chances of getting financed on your new property. To overcome your current negative income challenge with a lender, a good business plan that shows how your new location can make you profitable in the future can help. See our article on how to write a business plan.
Finally, since the amount you’re financing is under $500,000 you may be able to qualify for an alternative business loan, which can be a great option when traditional lenders can’t lend to you. It can also be a good option if you’re looking for a simpler application process and willing to pay a little extra for the convenience.
I hope that helps! Good luck!
alvina clairParticipant3 months, 4 weeks ago
The basic requirement required by banks for sanction of any loan is the character, capacity, and capital. These are popularly known as ‘3Cs’.
As a person approaches a bank for a new business they immediately ask to open a savings or current account. They observe the behavior of the customer for a minimum period of three months. If satisfied they raise a credit report. They ascertain the character of the borrower through this.
Nowadays banks seek a CIBIL report on the borrower to ascertain his past antecedents.
Banks insist that the borrower should have some stake in the business and they call it as margin contribution. If loan value is high they also seek some collateral security in the form of third party guarantee and mortgage. The margin constitutes the capital of the borrower.
Another important parameter is the capacity to pay back the loan. Banks fix EMI in case of term loan and for cash credit, they require interest is to be served every 30 days. There should be regular turn over in the account.
Capacity to pay back is measured through a study of market demand, industry rating, etc. In the case of bigger projects with investment more than ₹50crore banks obtain techno-economic viability reports.
In the case of govt sponsored schemes banks accepts subsidy as a margin amount. They also do not insist on the guarantee and collateral security in such cases. Loans covered under guarantee of CGTSME also do not require any collateral security.