Essential Factors an Entrepreneur Must Consider before Taking out a Bank Loan


There are procedures to accessing and approving of loans, and no matter how hard you try, you must qualify according to these procedures known as the Cannons of Lending before your application for a bank loan is granted. A designated credit officer is usually in charge of vetting loan applications and passing same to a higher authority that approves the loan.

According to the cannon of lending, your credit officer must determine the following requisites before proceeding with your loan application:

Cannons of Lending



  • Purpose of the loan: Your credit officer must enquire to know that the purpose for which you seek a loan is worthy and business-related. No financial institution or lending firm will give out loans on a whim for a gamble.
  • The exact amount to be borrowed: Your lending officer must know the amount of money you seek to borrow and how this will finance your project. You must also be certain of the amount you want to borrow before you approach a lender.
  • Length of time for repayment: Most loans are usually repaid monthly and in installments. Your lending firm has a stipulated length of time for each time of loan and you must be able to abide by these time frames before your loan is granted. There are short-term loans of six months duration and medium-term loans of two years duration or long-term loans of five years above.
  • Mode of repayment: Your lender will want to be certain you are capable of repaying according to required installments. You must be able to pay back monthly, quarterly or yearly according to the terms of the loan agreement.

Based on the above, the lending officer will want to rate you on four criteria before proceeding with your loan application. These ratings are known as the 4Cs of Lending:



  • Character: The loaning officer must be certain that you are of good character and trustworthy or credit-worthy before proceeding with your loan application.
  • Capital: You cannot be given above what the financier is able to give to you. Every customer has his own credit category based on his financial status and project at hand.
  • Capacity: The credit officer must judge you sane and mentally stable before you can access loans. No loans will be given to minors or people regarded as lunatics or drug addicts.
  • Collateral: You must have collateral or a physical guarantee that you can repay or provide a proof that the bank can recover their loan without your input before your loan is approved. This could be a land property, a car, a building, stocks, and other physical assets.

You must however be advised that it is better to take only loans you are capable of repaying without stress. The loan repayment must never affect your business and family in any way. The installmental repayment must be very low compared to the amount you make as profits from the business.


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