Final answer:
A bank evaluates the financial plan portion of a business plan to determine a business's ability to repay a loan. The financial plan, along with credit checks and possibly required collateral, are critical for the bank when making its lending decision. Option 1 is correct answer.
Step-by-step explanation:
When evaluating whether a business would be able to repay a loan, a bank will closely scrutinize the financial plan section of the business plan.
This part of the plan provides information about the business's income sources, projected revenues, expense estimates, and cash flow forecasts. The bank uses these financial projections to assess the viability of the business and its ability to generate sufficient profits to service and repay the loan.
The bank will also perform a credit check on the company's past borrowing history, which can influence the confidence that the bank has in the borrower's ability to repay. Additionally, banks may require collateral for the loan, which could be property or equipment that the bank can seize and sell in case the borrower fails to repay the loan.
The correct option for the bank to evaluate the business's ability to repay a loan is a. financial plan.