Key Factors Lenders Take into Account for Extending Credit – Insights by Robert Trosten

Robert Trosten says businesses need funds to grow, and it is commonplace for owners to borrow funds to expand. While businesses rely heavily on banks and financial institutions. Often startups and new businesses without a track record need to access alternative sources of finance. Because they do not qualify for the loans or lines of credit. Some of the most important factors lenders typically consider for extending credit to businesses:

A Good Credit Repayment History Is Vital, Observes Robert Trosten

Typically, lenders will obtain credit reports from all the credit bureaus to gauge the creditworthiness of the loan applicant. These reports contain details of the various credit accounts of the business, the inquiries. That the business has made for additional credit, and most importantly, and all the information about the repayment of its loans. The main intention of the lender is to establish. Whether the business has a stable history of making its repayments on time or has a habit of defaulting. The credit report will also reveal whether the business had filed for bankruptcy earlier. Unless the business has a good track record. It will not be able to access funds easily and at a reasonable rate of interest. The poorer the credit history, the stricter the terms and higher the rate of interest!

Credit Score of the Business Is a Critical Input

In their evaluation of loan applications. The higher the credit score, the better the chances of the business becoming eligible for loans. According to CNN, the credit score is the summation of your credit profile that not only takes. Into account your repayment history but also your total loan exposure and very importantly, your credit utilization ratio. It also factors in the number of times you made hard inquiries for credit. How many new accounts you have opened recently, and how quickly you repay your loans. As having good credit and it is relatively easier to get loans to approve, says Robert Trosten.

The Financial Standing of the Business

Robert Trosten
Robert Trosten

Conventional banks and financial institutions lay a lot of stress. On scrutiny of the different financial statements of a business. Such as the profit and loss statement, the balance sheet, and especially the cash flow statement. Typically, lenders will ask for at least the previous three years’ financial statements, an interim statement. For the current year as well as projections of revenues and profits for the next few years. The larger the amount of the loan requested, the more intense will be the scrutiny. As lenders will need to convince themselves. That their loan is secure and that the applicant will be able to repay it as scheduled.


In addition to the above factors, another significant consideration for lenders considering high-value loans is the amount of collateral the business is willing to provide to secure the loan. The total debt exposure of the business will also be examined to find out whether the business will be overextending its capacity to repay all its loans.