What aspects do financial institutions like the Bank of Rhode Island assess before granting funding to businesses

Financial institutions assess the probability of the business paying the loan back, and to do so, they evaluate the financial position of the business, mainly using financial ratios to do so.

For example, to analyze liquidity, the use liquidity rations like the current ratio, the acid test, and the cash ratio.

The also analyze the firm from a revenue standpoint, meaning that the financial institution tries to determine how profitable the company is, and how its profitability will evolve in the term of the loan. To do so, they use asset turnover ratios, economic value added ratios, net income, and even the weighted average cost of capital.

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