Return on assets
The profitability of a company is its return on assets. It is the ratio of operating profit for the year to the average annual value of assets. If the return on assets is less than the interest on the loan, it is not worth taking the loan, it will 'eat' the company. Operating profit is the difference between what a company earns and what it spends on its core business. Business assets - this is what brings profit to the business (property, transport, equipment, patents, licences, materials, finished goods and cash, accounts receivable).

Regular monitoring of all income and expenditure, analysis of returns on investments made with borrowed funds, financial accounting and planning help to manage loan funds effectively.

! It is necessary to keep financial records and to know the return on investment of your business in order to compare it with the interest rate on the loan.

Anticipated demand for goods and services
Business is a set of interrelated processes in which any change in one element affects the whole system. Do you know your company's market share? Who is the market leader in your industry? What are your competitors doing? Can you describe the strengths and weaknesses of your company and your competitors in an unbiased way? What do your customers need?

In a seasonal business, when demand is expected to increase, a company may take out a loan to increase stock or expand production.

! To forecast demand correctly, you need a clear financial model of the business.

Credit - an opportunity or a problem? A loan can be a fatal mistake for an unstable business and a great solution for an established one. Some people are proud of the fact that they have developed their business without taking out a single loan. Some are afraid of loans, others want them but don't dare. How do you know if your business is ready for a loan? The financial experts at the Eifos Hub advise you to pay attention to the main factors of lending to green businesses.

Borrowing is often a driver of business growth, provided it is profitable. There is no clear-cut decision 'to borrow or not to borrow'. It is a serious and responsible choice. Understand all the risks associated with the loan.

Financial model
How much can a company earn? What affects its profits? What are its growth points? What are the key indicators for reaching the target? Only when we know the exact numerical answers to these questions can we talk about lending.

How appropriate is it to obtain credit? There are business areas where credit is a prerequisite for successful operations: trade, construction, capital-intensive industries, agriculture. That is, where the net profit is not sufficient to scale up. It should be remembered that scaling up is a certain stage in the development of a business. It is always dangerous to enter without having reached this stage. Which of the five stages is your business at? Only after you have passed the first four (I. Business creation; II. Establishment; III. Systemisation of processes; IV. Exit from operations) can you think about the fifth stage - scaling.

It is risky to lend to a stagnating business. Borrowing can be a trap if the owners do not look at financial indicators and are under the illusion that a loan will help them through difficult times.

! The financial model of the business must be clear so that demand can be forecast.

Cash Gaps
Even a stable business can experience cash shortfalls. Cash gaps are one of the most common causes of debt in a business. Customers delay payment, suppliers break contracts, advance payments have to be returned. Eventually, the entrepreneur has to take out a loan to cover the shortfall, and in such cases debt is justified. A cash gap indicates a lack of working capital, not a loss-making business. Short-term loans and overdrafts help to bridge this temporary gap by providing the business with the funds it needs to continue trading.

! You should only borrow to cover cash gaps if the business is profitable.

Credit terms and needs assessment
Credit can be a powerful tool for business development and growth if used wisely. It can help you bridge cash flow gaps, invest in new projects and expand your business. But for credit to be truly useful, you need to carry out a thorough needs assessment, plan your cash flow and choose the best loan terms.

Eifos Hub helps lenders and borrowers by checking

• Business credit history
• Business development plan (as a basis for lending)
• Financial and accounting statements (shows the stability and profitability of the business)
• Collateral (assets that can be pledged as security)

If you are considering a loan, the experts at Eifos Hub will help you avoid potential risks and offer the best solutions for your business.