Small businesses have lots of options today to get a loan. But you may do not know what kind of options to take that will suit your small business. You must choose the right loan and the right lender which will allow your business to thrive. That is why we have gathered all the information for you. Here you will know what questions to ask when getting a business loan. You will also know what the banks look for when applying for a business loan. Knowing all of these will help you to be aware of things attached to small business loan options. Finally, you can opt for the loan that you are confident about. Continue reading to know more.
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Questions to ask before getting a small business loan
1. For what will you need the extra capital?
You will have to be clear about why you will need the loan money for. This must be the first question you should think about. From this, you will understand if you want the loan for long term purpose or short term. For instance, the financing needs for getting a quick-turnaround inventory are different than that of requiring money for purchasing costly equipment for a factory. That is why you need to identify the purpose of your loan. If the term is short then the periodic payment will be high but if the term is long then the periodic payment will be high. Surprisingly, many small businesses owners choose the shorter-term loan according to a survey. This is because they want to lessen the total interest cost.
2. How much money do you expect?
Many people think that if the loan money is more they can take care of all their problems soon. But if asked how much they want many owners answer that they want the money they could get. This shows that they are not clear on how they will use that amount. There is no definite plan. But every time you like to borrow money for loan you must plan accordingly. You must borrow what you need at that moment and not more. If you have planned the amount you require then you will know which lender to go.
3. How is your credit profile?
The credit profile is important if you are trying to get a loan. Your credit score and your credit profile will determine if you will be successful in getting a loan. But unfortunately, many small business owners are unaware of their credit profile benefits. So you need to create a strong credit score. Most of the lenders will have a look at your credit score if you apply for a loan. For example, a credit score of less than 650 will make it hard for you to get a loan. Therefore take a look at your credit score and if it is less try to make it good.
4. How soon do you require the money?
Some small business owners will need the loan soon. Therefore if you need it soon you have to review all the above questions. Decide on what you need the capital for, and then calculate how much money you need. At last, improve your credit score. These arrangements will help you to get the loan soon.
Questions to ask the lender before getting the loan
1. Do they provide money for your industry?
Moneylenders offer money for some specific industries. They may sometimes do not work with a particular set of industries. So you have to ask the lender if they lend money for your industry. Even if you have all the qualifications to get the loan if they do not serve your industry then you are wasting your time. You can ask this question at the beginning so you can find a suitable lender soon to serve your needs. On the other hand, some of the questions business loan officers may ask to confirm about your small business and its workings.
2. Do they offer a loan term that suits your small business?
As you have decided the purpose of your loan and the term you have to ask the lender if they offer the term you prefer. You have to opt for the lender that offer you the terms you prefer than only it will be easy for you to manage. If not, it will become an added burden.
3. What are the banks’ interest rates and total cost?
There are lots of comparison tools that will help you to compare the financing options. You can compare the loans through the APR and that is the Annual Percentage Rate. If you calculate the APR you will get everything you need about the loan. So you will know about the interest rates and the total cost. For instance, if you get $10,000 as a loan, the payback will be $11,500 and the total dollar cost will be $1,500.
4. How will the payment schedule be?
You have to know about the payment schedule. Check whether you will have to pay daily, weekly or monthly. Many small business owners opt for the monthly payment schedule. They think that it lightens the cash flow burden. But if your lender asks for a daily or weekly payment schedule you have to check if your business will have a steady cash flow to manage it.
5. When will be the first payment due?
Ask your lender about the monthly loan payment and also when will the first payment will be due. This will help you to plan for the first payment. But if you want to take a daily repayment schedule then the payment may get due on the next business day after you get the loan. If this plan does not suit you opt for the monthly payment schedule.
6. How to make the periodic payments?
Some lenders will accept the paper check. However many online lenders have started to accept the automatic debits via an ACH withdrawal. This has become a very convenient arrangement. This is an easy way for the lender to get the money in time. The ACH payment can also save business money because a paper check can cost you $1.22. You have to be aware of what will debit from your account every month. Be clear of all the things attached to this arrangement.
Will the periodic payment a fixed amount or does it fluctuate? If it is a fixed amount then it is the same amount every month but if it fluctuates then you have to check if the exact amount gets debited or not. If you have doubts about this you can ask your lender. The will help you to understand the payment process.
Conclusion
These are the things you must know before getting a loan for your small business. Be aware of all matters related to the loan before and also once you get it.
Also read: 6 Tips to Help You Get on Top of Money Management
