If you can see that your business is rapidly expanding and you’re going to need some extra funds to handle the growth, or if you want to open or buy a venture this year or next, it’s likely you’ll need to utilize a loan to help you move things to the next level.
It’s essential to think through this big financial commitment and do plenty of research. Part of your due diligence should be asking lenders various questions before applying for a loan with them.
What Documents Do You Need to See?
For starters, you need to know what documents lenders request from those who apply for small business loans. Ask which documents they’ll need to see to consider your application, such as business tax returns from the last three to five years (and perhaps even your own personal ones, if your business is only new), and profit and loss statements, balance sheets, and cash flow details.
Banks and other financial institutions typically ask to see financial projections and lists of assets and liabilities. Plus, they’re likely to ask to see your business plan so they can get an idea of your vision for your business, where you’re trying to take it, and potential risks and impediments, as well as opportunities, along the way.
Do You Specialize in Certain Types of Loans?
Next, ask lenders if they specialize in certain types of loans. While many don’t have any criteria when it comes to the type of businesses they lend money to, some are very focused on supporting specific industries (some even loan only to those types and not to others), or they might only provide loans to companies of a certain size or provide loans under or over a certain dollar amount.
Finding out this information ASAP will help you know which banks or other lenders might be a good fit for your needs and which ones to avoid. You don’t want to waste time submitting applications to firms that will just say no anyway.
How Long Does the Lending Application Process Typically Take?
Another critical question to put on your list is how long lending applications take for each organization. Some can be very quick these days, especially online-only boutique lenders focused on getting a response to applicants quickly. At the same time, many big banks and other institutions can take their time, leaving you waiting for weeks.
If you need funds quite urgently or if having access to an approved loan is the make-or-break criteria for you to do a deal, such as acquiring another business or saying yes to leasing or buying business premises, this speediness question is going to be a crucial one for you.
Are There Ways I Can Get Better Rates or Terms?
While many entrepreneurs focus on whether they will get their loan application approved and when, they don’t often consider the importance of the terms they get for the loan if they get a yes. These elements can significantly impact how much money you end up paying out over the years and how hard it might be to refinance or close the loan.
As such, ask lenders about the rates and terms and conditions of any loans they offer you and if you can do anything to get better options. For example, you might be able to provide some personal collateral or get a guarantor on a loan to have the rates reduced, or by improving your credit score personally, you might be able to get much better interest rates offered when you need funds to start a new business.
Some lenders will provide more favorable terms if you bring over your business deposits or other accounts, so they get more of your business, or they’ll lower the application fees if you also want to take out car insurance or utilize auto-deducting loan repayment setups, etc. It’s also worth letting people know that you’ve been offered better options elsewhere and see if they can match it, as you never know if they might say yes.
Some other questions worth asking any financial institution before applying for a business loan are:
- What features come with the loans you offer?
- What will the payment schedule be?
- Can I speak with some of your other business customers?
- What happens if I ever can’t make my repayments on time?
- Are there restrictions on the use of the funds?
Do your due diligence in this way, and you should find that getting a loan is quicker, easier, and less stressful and that you save funds over the long term, too.
