Factors to consider when offering capital

• Financial institutions such as banks and micro lenders consider a lot of factors when they are considering whether or not to deny a business’s request for a loan or capital
• Some of the things they take into consideration include:
• Non-financial information such as:
• The names of the business’s owners or representatives,
• Their residential addresses of these applicants
• The name of the business
• The type of business in which the business is involved in
• They also consider financial information such as:
• The business’s balance sheet so that they can know the financial position of the business
• The balance sheet also enables the potential lenders to determine the business’s
• gearing
• liquidity for example using the Current Asset ratio
• The business’s profit and loss account so that they
• can determine its profitability and thus ability to be able to repay its creditors as well as determine
• Its efficiency in converting sales into profit
• The lenders might also want to look at a business’s Cash flow statement
• And thus be able to determine its cash flows and try and gauge its ability to repay its debts in the future.
• The lenders might also want to determine and know the business’s representatives’s credit worthiness
• This will help them know if they can recover their money if businesses with unlimited liability fail to settle their debts
• The lenders might also want to know the occupation and salaries of the owners for the same reasons

To access more topics go to the O Level Business Notes page.