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Business Value Analysis Business value strategy

Business Value Planning and Lenders

A small business lender needs to assess the risk of lending money. Here are the primary questions they’ll want answered before approving a small business loan. The answers to these are all in the business value plan for the lender. However, Growth Concepts looks deeper into these questions for a sustainable future value initiative that provides expansion and a higher business value. Once we find that untapped value the Lender could assist with the new value move.

About the Business:

  • What is the business and how long has it been operating? Lenders want to understand the nature of the business, its industry, and its track record. Established businesses with a history of profitability are generally seen as less risky.
  • What is the business’s legal structure? (Sole proprietorship, partnership, LLC, corporation) This impacts liability and how the loan is structured.
  • What is the loan for? Lenders need to know how the funds will be used. Loans for revenue-generating activities (e.g., purchasing equipment, expanding operations) are more favorable than those for covering losses.
  • What are the business’s financial statements? Lenders will scrutinize:
    • Profit and loss statements: To assess revenue, expenses, and profitability.
    • Balance sheets: To understand assets, liabilities, and equity.
    • Cash flow statements: To see how money is moving in and out of the business.
  • What are the business’s projections? Lenders want to see realistic financial forecasts demonstrating the ability to repay the loan.
  • What is the business’s credit history? A good business credit score is essential.
  • What is the business’s market and competition? Lenders want to understand the business’s competitive landscape and its ability to thrive in the market.

About the Business Owner(s):

  • What is the owner’s experience and expertise? Lenders want to know that the owner has the skills and knowledge to run the business successfully.
  • What is the owner’s personal credit history? In many cases, especially with small businesses, lenders will also consider the owner’s personal creditworthiness.
  • What collateral is available? Lenders may require collateral (e.g., real estate, equipment) to secure the loan.
  • What is the owner’s equity contribution? The owner’s investment in the business demonstrates their commitment and reduces the lender’s risk.

Loan Specifics:

  • How much is being borrowed?
  • What is the requested loan term?
  • What is the proposed repayment plan?

By thoroughly investigating these areas, lenders aim to determine the borrower’s ability to repay the loan and minimize their risk. While Growth Concepts looks deeper into these questions to the future expansion of the business and how will more working capital sustain the expansion and a higher business value for leveraging equity. Contact us for an online complimentary review of your specific situation.

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