What Does a Lender Look For?

Good Credit Score. This is a very important factor in the consideration for a loan, but not the only one. If your score is not good right now, work on improving it. Check www.annualcreditreport.com for a credit report.  You are able to get one free once a year.  If you don't have perfect credit, you can boost your chances through additional collateral, a higher co-investment in the project, a cosigner, etc. You will have to explain any outstanding issues with your credit.

Collateral (security for loan). In some cases a good credit score and down payment are enough to secure a loan. However depending on the amount of the loan, you may also have to offer collateral. Collateral is the stuff you own but not using in the business including houses, stocks, or any other major possession as collateral if the bank requires security in the event you cannot pay back the loan.

Experience. Experience of the business owner is an important factor for getting a  loan. Banks feel more confident in giving out a loan to business owners who have relevant experience in the business that they are starting.

Owner's Investment. If you are forming a new business, be prepared to invest a certain portion of the start-up costs personally. A good rule of thumb is to have at least 20% investment in the project.  The preferred investment is cash because it is easy to value but things like equipment, computers, supplies, etc. are allowed. 

Capacity to Manage and Pay. The business should be able to generate enough cash to pay back the loan installments.  This will be explailned in the business plan with supporting documents (ie tax returns) and financial projections. 

While most banks want to help entrepreneurs fund and expand their businesses, their primary objective is to make money from the loans and minimize their risk. Just because you have a great idea and are motivated to see it through, you may not get a loan.