Hits: 2317

How Much Can You Expect From the Bank?

Small Business Loan
The bank determines the amount, rate, and term of a loan by analyzing the risk involved.
The risk is measured by multiple components. These include:

1. The quality and value of the collateral available to support the loan.
2. The amount of profit and risk determined by the bank.
3. The predicted longevity of the assets as represented by the loan term.



The Three Components of the Lending Decision

1. First, the bank must analyze and approve the equity of the client.
2. Secondly, the bank must assure the client’s ability to repay the loan.
3. Thirdly, the bank must calculated and approve the loan amount.

The Three Determining Factors that affect the Interest Rate of a Loan

1. The bank’s cost of funds
2. The risk assessment of the client, based on credit.
3. The spread that the bank needs to earn as a profit.

What Determines the Bank’s Loan Term

1. The bank’s valuation of the assets.
2. The longevity of the assets.

Bank Financing Analysis

1. Once the bank has determined a financing amount, a debt service is established.
2. Debt service determined by the total monthly principal, interest payment of the
loan, and the term of the financing.


1. The business must be able to supply the down payment required.
2. Have the funds been expanded?

  • Where will the cash come from?
  • Personal assets
  • Business assets
  • Sale of business assets