A business loan is funding given to a business by a bank, an individual(s), or an organization usually to be repaid by a certain date with a certain amount of interest. The amount of a loan, the amount of interest, the repayment date, the qualification of the loan recipient to merit the loan, the credit analysis, and the number of lenders used to achieve the desired loan amount are all variable.

Regardless of the amount of funding a business is seeking, when it comes to Debt Financing 99.99% of lenders will focus on three basic aspects in the underwriting process.

As the applicant you should be ready to supply verifications of either one of these, or in some cases all three of these will be required by an underwriter:

I.C.C.

Income: Business income is income received from the sale of products or services. Any income that is realized as a result of business activity. Often verified via business bank statements, income statements, or tax returns.

Credit Analysis: An analysis of a business’s records and financial affairs to determine its creditworthiness. Review of a business’ payment history with its creditors, and vendors.

Collateral: Something of value (land, equipment, vehicles, inventory, etc) that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right by law, to seize the collateral.

The Amount of Interest Assessed on a Business Loan aka (Cost of the Funds)
Lenders will assess interest on a loan based upon the recipient’s credit history, the presence or absence of collateral, the industry, and the venture’s risk. The pricing model is employed which uses four factors in determining the interest rate or cost of the funds: the funding cost incurred by the lender to raise funds to lend, whether such funds are obtained through customer deposits or through various money markets; the operating costs of servicing the loan, which include application and payment processing, and the lender’s wages, salaries and occupancy expense (overhead); a risk premium to compensate the lender for the degree of risk involved with the loan request; and a profit margin that provides the lender with an adequate return on its capital.