Many small business owners won’t have the extra funds tucked away in a savings account to go toward paying for new equipment, hiring employees, making the payroll or expanding the company. There are several financial options available, but the traditional route you may select is a bank loan.

The process of getting a bank loan isn’t easy, as you simply can’t fill out an application and get the money instantly in your hands the same day. The bank manager will have to review the loan information as they will look for several specific factors in your documents to determine if you qualify for the loan. These factors help the bank manager determine how much of a risk your business is at defaulting on the loan or if you have enough financial stability to pay back the full amount.

Here is a list of 4 things the bank manager will look for when you are seeking a loan.

1. A business plan

A bank manager has to know what type of business you are operating and how much of a market demand there is for your products or services. A business plan helps the bank figure out whether you have done your research about the current market, how your product or service fits into your particular market segment, what the current financial health is for your business, and how you are bringing in profits. While not every bank manager will request a business plan, it can still help you plan out the necessary steps to expand and grow your business. If you’re still unsure whether or not you need a business plan then read our opinion in our blog post.

2. Financial assets

What do you have for security that will cover the bank loan if you can’t repay it? The bank manager will look at all types of assets in an effort to lower the risk the bank will take on when granting the loan. This security can consist of several things including the equipment you plan to purchase or have on hand, existing inventory, or even personal assets such as a home.

3. Future financial projections of cash flow

Basically, a bank manager needs to know your cash flow so you can pay them back. If you are an existing business that has been operating for several years, your historical cash flow reports combined with analysis reports of your future financial forecasts will be used to see if your cash flow will remain strong to repay the loan even during the times when the market fluctuates. If you’re not sure how to prepare cash flow forecasts then don’t worry, we’ve written an entire guide on it.

4. Loan details

It’s incredible how small businesses can make mistakes in the loan details, such as asking for too much money that you could never repay. By taking the time to figure out what the loan will be used for, the bank manager will be able to offer the right type of loan for your needs at the desired terms.

Every bank manager is different, and may also look for other factors to determine whether they will grant you a loan. Having all your financial information ready, creating a business plan, and offering security to cover the loan can help reduce your business risk and offer a greater chance of getting the loan you want.

There are many different funding options available to businesses which can be read about in our handy guide.