The approval of your small business loan application may seem like a mysterious process. The following credit issues will play a major role in whether your loan application is approved. Understanding these elements may take some of the mystery out of the process and help your business obtain needed financing. Equity Investment Determining whether your level of debt is appropriate requires a close look at your company's expected earnings and the variability of these earnings, as well at the ratio between total debt and equity. Strong equity and low debt levels provide strength which will help your company make it through tough times.
Sufficient equity is particularly important to new businesses.
You must have a reasonable amount invested to ensure that, along with any borrowed funds, your business can operate on a sound basis. A strong equity position reassures your lender that you will remain committed to your business. Earnings Requirements Financial obligations are paid with cash, not profits. When cash outflow exceeds cash inflow for an extended period of time, your business won't be able to continue operations. As a result, cash management is extremely important.