Numbers That Matter When Applying For A Loan (Part 1)

loan-applicationIt might come as a surprise to many but most bankers will not read the full financial statement. Well, at least not at first.

If you are a small business owner applying for a loan, bankers are likely to go over your financial statement and easily draw a conclusion within minutes if they will grant a loan or not.

Real Numbers That Matter

As you know, you are required to furnish a copy of the audited financial statement prepared by chartered Melbourne accountant or a reputable Melbourne accounting firm. While the final decision may require in depth analysis, the bottom line is they will determine whether you can pay, will you be willing to pay and what are their recourse if you don’t pay.

When you are sitting down with your Melbourne accountant or coordinating with your Melbourne accounting firm, it pays to also know what specific numbers really matter when you submit your financial documents for a loan application.

Ability To Pay

One of the determining factors that bankers and other financial institutions look into is the ‘cash coverage ratio.’ This is calculated by your Melbourne accountant or Melbourne accounting firm by taking the net income then adding back the amortisation and depreciation, which are not cash expenses. This will provide them a rough figure of your net cash flow or the money left over after all the bills are paid. Then this figure is then divided by the annual payments on the proposed loan in order to determine the cash coverage ratio.

In general, banks will want to see a ratio of 1.5 or higher. This means, if your bank loan requires you to pay a total of $ 20, 000 every year, you will need at the very least a net cash flow of $ 30, 000 or higher to gain approval.

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