4 factors that affect working capital loan assessment

4 factors that affect working capital loan assessment

You might require a working capital loan to support your company’s growth phase. While there are many aspects of banks’ loan assessment, below are the 4 critical factors that influences the credit decision.

  • Financial statements and tax returns to prove net worth and income

Financial statements including profit and loss statement will tell the banks your company’s performance for the latest year.

Banks will assess whether if your business is able to generate enough income to cover existing expenditures. Most importantly, lenders want to be assured that your business is able to service the loan repayments on existing cash flow.

Validating your earnings will require 2 sets of documents. Aside from the above mentioned latest year to date financial statements, banks might also require your company’s tax returns to reflect the profit or loss declared.

If you’re able to show with certainty that company is profitable for last few years, you should have more funding choices when sourcing for business loans.

  • Credit rating of the director

From a loan provider’s view, your credit rating is a strong indicator of your credit worthiness. You’ll have accessibility to more working capital loan funding options if you have a high personal credit grade.

If you have bad repayment records and poor credit rating, your alternatives for financing will certainly be a lot more restricted.

Be prepared to be quoted with higher business loan interest rates as well as lenders would have to charge a higher interest to mitigate the higher risk of default.

Since the director’s personal credit grading is a strong signal of credit worthiness and reliability, it is essential that you always maintain prompt payment records for your existing personal facilities.

This is a critical and essential factor when it comes to loan assessment.

3Cash float maintained in bank account

Banks will conduct a bank statement analysis to assess the average cash balances you carry in your company’s bank account during loan application assessment. The more cash float you have, the more positive the assessment.

A very common question we get often is why would I want to have so much cash in my account when I’m applying for financing. If I have cash for working capital, why would I require even more? Nevertheless, banks would still like to know exactly how much liquidity you have in your accounts you can instantly access if required.

Profitability is a mark of running an effective businessLenders are not as much interested in just your profits— they want to know exactly what you do with the profit after you make it. Credit approvers would like to see if you could preserve adequate cash flow buffer in your accounts or if you re-allocate it as quickly it comes into your bank.

Despite your revenue figures, banks wish to see that you have sufficient liquid cash to roll. This raises their confidence that your company will be a going-concern and you have enough cash on hand to repay the loan.

Preferably, most banks would like to have enough cash flow to cover at least 3 months of overheads as well as loan repayment installments.

  • Period of operations

Most SMEs will cease business within first 3 yearsThe percentage of small businesses that can make it past 5 years will be even narrower.

With such dismal survival rates, it’s no surprise that banks would very much prefer to finance companies with at least 3 years of operational history versus brand new start up.

Therefore, the period that you have stayed in business is another major factor on your capability to acquire funding. If you are a new start up operating less than 2 years. you could be better off managing with your existing resources first or seek other alternative funding.

Wait till your company is a little bit a lot more well established before exploring mainstream banks financing.


There are too many other factors that affects your chances of qualifying for SME loans. The above 4 factors are the most critical ones that all SME owners should take note of.

In summary, be mindful of the above discussed 4 critical factors and you should be in a good position the next time you are sourcing funding.