Lenders of capital have a lot of factors to consider. Image credit earlyretirement.com

Lenders of capital have a lot of factors to consider. Image credit earlyretirement.com

ZIMSEC O Level Business Studies Notes: 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.

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