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Evaluating Credit Worthiness A borrower can usually get credit if the lender trusts them to pay back the loan. One thing that goes into a lender's credit policies is the borrower's creditworthiness, which includes their ability and willingness to pay. Creditors and lenders use various financial tools to determine if a potential borrower is a reasonable credit risk. When both the lender and the borrower are businesses, much of the evaluation depends on the borrower's balance sheet, cash flow statements, inventory turnover rates, debt structure, management performance, and market conditions. Creditors like borrowers whose net earnings are more than their debt payments and other possible costs. Here are some of the things that lenders look at when deciding whether to give a person or business credit: Credit-Worthiness: A debtor's ability to pay is shown by how reliable they have been in the past, how moral they are, and how well they are expected to do in the future. People with high credit scores get better terms from lenders, like lower interest rates and point structures. Size of debt burden: Creditors look for people who can pay back their loans faster than they have to. The size of the debt is always limited by how much money is available. Creditors like to see a safe balance between debt and capital. Loan size: Creditors like big loans because the costs of running the loan go down as the loan get bigger. But legal and practical limits show that the risk needs to be spread out. This can be done by making more loans or having other lenders join in. Lenders who want to participate must have enough money to consider large loan requests. Also, the person who wants to borrow money must be able to take in a lot of money. How often the business borrows: Businesses that borrow money often build a reputation, directly affecting their ability to borrow money on good terms. Length of a promise. As the time horizon gets longer, lenders take on more risk. As a result, long-term loans have higher interest rates because the lender is taking on more risk. The people and the community: Lenders may be willing to take on a high level of risk if the loan helps the community. For example, banks might participate in projects to build low-cost housing or programs to help start new businesses. How To Get Approval For Credit From Lenders? Many small businesses need loans or other forms of credit to pay for day-to-day purchases or long-term investments in facilities and equipment. Credit is a big part of how the world economy works, and small businesses often need credit to stay in business. A small business needs a business plan and a good credit history to be approved for any credit, from short-term loans to equity funding. The company must prove that it can pay back the loan with the interest rate that has been set. It must also show that the future of its type of business is good enough to support planned projects and the reasons for borrowing money. When small business owners apply for credit, they should know that banks, vendors, and investors will look at their ability and willingness to pay back the amount owed. This means that the creditor will look at the borrower's character and how well they can run a business. Creditors will also look at how much money the company needs, why it needs it, and how it will pay it back. When deciding whether to give a small business credit, lenders like to see up-to-date books and business records, a large customer base, a history of paying bills on time, and enough insurance. The Federal Trade Commission (FTC) regulates the process of giving businesses loans to ensure that it is fair and non-discriminatory and that all parts of the process are made public. In addition, the Small Business Administration (SBA) puts out pamphlets and other information to help businesses get loans. These publications give businesses advice on a wide range of credit approval topics, such as how to describe assets, make a business plan, and know what questions to expect and how to answer them. So, here are practical tips to help you get your loans approved; • Tip 1: Get a good business plan • Tip 2: Present your business as premium (Great Website & Branding) • Tip 3: Maintain a good financial record • Tip 4: Build your credit score • Tip 5: Have a tangible reason for borrowing money • Tip 6: Create a payment plan for your loan, and present it to your creditors alongside the business plan.