15 Financial red flags when reviewing a small business loan application
|When you’re reviewing a small business loan application, there are a few key things to look for in order to assess the risk of the loan.
Here are 15 financial red flags that you should be aware of:
1. The business has little or no revenue:
This is a big red flag because it means that the business is not generating enough money to cover its costs.
2. The business has high levels of debt:
This is another red flag because it means that the business may not be able to repay its debts.
3. The business owner has personal guarantors:
This is yet another red flag because it means that the business owner is personally responsible for repaying the loan.
4. The business owner has a poor credit history:
This is also a red flag because it means that the business owner may not be able to repay the loan.
5. The business has a short operating history:
This is yet another red flag because it means that the business may not have enough time to establish itself and generate enough revenue to repay the loan.
6. The business is not profitable:
This is also a red flag because it means that the business may not have enough money to repay the loan.
7. The business has negative cash flow:
This is yet another red flag because it means that the business may not have enough money to cover its costs.
8. The business owner is using the loan for personal expenses:
This is also a red flag because it means that the business owner may not be using the loan for its intended purpose.
9. The business owner has a history of defaulting on loans:
This is another red flag because it means that the business owner may not be able to repay the loan.
10. The business is located in a high-risk area:
This is yet another red flag because it means that the business may be more likely to default on the loan.
11. The business has a high rate of employee turnover:
This is also a red flag because it means that the business may not have enough stability to repay the loan.
12. The business has a history of litigation:
This is another red flag because it means that the business may be more likely to default on the loan.
13. The business owner has a history of bankruptcy:
This is yet another red flag because it means that the business owner may not be able to repay the loan.
14. The business is a start-up:
This is also a red flag because it means that the business may not have enough time to establish itself and generate enough revenue to repay the loan.
15. The business owner has a history of personal financial problems:
This is the last red flag because it means that the business owner may not be able to repay the loan.
These are just a few of the many red flags that you should be aware of when you’re reviewing a small business loan application. Make sure to do your due diligence in order to avoid making a bad investment.
FAQs:
1. What is a red flag?
A red flag is a warning sign that something may be wrong.
2. What are some red flags to look for when reviewing a small business loan application?
Some red flags to look for when reviewing a small business loan application include: little or no revenue, high levels of debt, personal guarantors, poor credit history, short operating history, lack of profitability, negative cash flow, using the loans for personal expenses, defaulting on previous loans, high-risk location, high employee turnover, history of litigation, bankruptcy, start-up status, and personal financial problems.
Conclusion:
When reviewing a small business loans application, you should be aware of a number of red flags that may indicate that the loan is not a good investment. These red flags include: little or no revenue, high levels of debt, personal guarantors, poor credit history, short operating history, lack of profitability, negative cash flow, using the loan for personal expenses, defaulting on previous loans, high-risk location, high employee turnover, history of litigation, bankruptcy, start-up status, and personal financial problems. By being aware of these red flags, you can avoid making a bad investment.