when applying for a secured loan such as an auto loan or a home equity line of credit heloc the borrower pledges collateral the lender will make an evaluation of the collateral s full value and subtract any existing debt secured by that collateral from its value the remaining value of the collateral will be the equity that affects the lending decision i e the amount of money that the lender could recoup if the asset were liquidated 3
the lender also evaluates a borrower s available capital which includes savings investments and other assets that could be used to repay the loan if income is ever cut due to a job loss or other financial challenge the lender may ask what the borrower plans to do with the loan such as use it to purchase a vehicle or other property other factors may also be considered such as environmental or economic conditions 3different lenders have different rules and procedures for business borrowers banks savings and loans and credit unions that offer small business administration sba loans must adhere to the guidelines of that program private institutions angel investors and venture capitalists lend money based on their own criteria these lenders will also look at the purpose of the business the character of the business owner the location of business operations and the projected annual sales and growth for the business 5small business owners prove their ability for loan repayment by providing lenders both personal and business balance sheets the balance sheets detail assets liabilities and the net worth of the business and the individual although business owners may propose a repayment plan the lender has the final say on the terms 