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What do banks look out for when assessing loan applications?

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Expert’s Take

Christie Chu
Head, Emerging Business, Global Commercial Banking, OCBC Bank

Businesses that show an ability to manage their cashflow and have a good track record have better chances of getting a loan from Financial Institutions (“FIs”). Common red flags are unsatisfactory credit bureau checks and bank statement records, returned cheques due to insufficient funds and losses over multiple years.

So, in order to bag that loan, there are a few factors the business needs to take note of. Foremost, the company’s bank account is a good indicator for FIs, so make sure it reflects your company’s dealings accurately. In other words, keep your personal and business accounts separate; many young companies don’t do this - which makes it difficult to track where funds are going, or where they are coming from.

The second thing we look at is the company’s track record, and having at least 2 years’ worth of financials will work in the company’s favour. With that said, young companies that are incorporated for less than 2 years won’t have any track record to speak of but FIs generally do consider other factors. If they have financially strong customers for instance, that would work to their benefit. The strength of the management team – one that knows the industry and has previous experience operating in the industry – is another consideration.

Lastly, as a company grows, cashflow projections become an increasingly important deciding factor for FIs. For instance, what are the company’s projections for the next 6 or 12 months? Business owners may be good at getting new accounts or managing operations, but could struggle when it comes to cashflow projections as it is quite technical. Hence, getting a financial controller or financial expert’s help may be a worthwhile expense.

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