Majority of successful businesses are funded by Bank. Bank Loan is relatively a cheaper source of Finance. Loan is good as long as your business can generate healthy Cash flow.
Major benefit of taking loan from Bank is that you don’t lose control over the business as opposed to raising money from investors. Banks dont want control—at least beyond whats is drafted in loan agreement. Banks lend money and charge interest. They don’t invest hence dont own your business.
Bank loan is primarily a debt financing i.e you obtain loan and pay it back as per terms. Banks have no influence as to how the business must be run.
In order to obtain loan from any of banks whether in Ireland or abroad, business needs to supply a robust Business Plan.
Bank is not interested in Boosted profit projections rather if the business plan projections can attract investors they may turn down loan application. Instead banks are interested in seeing a B Plan if things dont work best.
Below are the things Banks will take into account when they process the loan application.
1. Money flowing through your Business- As they say cash is King. Bankers are interested in seeing if business has sufficient funds at least to pay back the installments of loan (Both Principal and interest).
2. Collateral. Collateral is a property or other assets that a borrower offers a lender to secure a loan. If business stops making the Loan payments, the Bank can seize the collateral to recoup its losses. Because collateral offers some security to the lender in case the borrower fails to pay back the loan, loans that are secured by collateral typically have lower interest rates than unsecured Loan.
3. Marketing plans.
Banks are now interested in seeing the business sales and marketing plans.
4. Management. Banks assess how well organised the management team is. Strong management team may increase the chances of securing the loan.
Debt financing is most appropriate for up-and-running enterprises that can show adequate cash flow and collateral to service and secure the loan.