10 Questions To Ask Yourself When Applying For A Business Loan

10 Questions To Ask Yourself When Applying For A Business Loan

Before obtaining even a small business loan, there are several factors to consider when developing your firm through financial injection (or leverage) to choose the optimal business growth strategy for you. It is crucially important to conduct research because it entails much more than simply filling out a form.

These are 10 crucial enquiries to consider increasing your chances of receiving funding for your business:

1. Would My Business Be Eligible?

You don’t want to be applying for credit all over the place! Applying for a loan you won’t be approved for will simply lower your credit score and your likelihood of getting funding in the future. Before you apply for anything, investigate the lending conditions of the lender. You can usually find this information on a lender’s website or by calling and asking! Lenders will have slightly different requirements. The most frequent prerequisites include things like accurate cash flow forecasts, collateral assets, business strategies, a solid credit history, etc.

With clients we help we won’t have to sift through all those items since the lenders we employ will use online data like your business’ bank accounts or Xero, where all the information is provided online easily.

2. How much do I require?

You need to be completely honest at this point. It doesn’t necessarily follow that you need to borrow that much just because a lender claims your business is qualified to do so up to a particular level. You don’t want to borrow too little so that you don’t get the full advantage of the loan, but you also don’t want to borrow too much so that you have trouble making the repayments.

I realise that this seems somewhat apparent, but it’s something to think about.

To determine how much you can afford in repayments and how much you’ll need overall, you’ll need to complete some cash flow forecasts. Clint owns a concrete company and wants to buy more equipment. He could have borrowed $30,000 more than was necessary, but we decreased his loan to pay for the new purchases and added a little extra to cover any further new purchases. This made sure he wasn’t taking out more debt than he required.

With another client, Anita wanted to borrow as much as possible for future expansion. With Anita, we were still able to help her although it wasn’t quite as much as she wanted initially, her lender is happy to review everything again in the next 3-6 months to see if they can help her get where she wanted to initially.

3. Should I Get Security? What Much Can I Borrow Against It?

Only when a loan needs to be secured by something, or when it is a secured loan, does collateral exist. Examine your available assets and try to estimate their value. Reduce your offer because it’s likely that the banks won’t value it as highly as you would. A bank will often value your asset at 60–70% of what you believe it is worth (yuck!).

With the options we have available, you won’t have to worry about this one because some of the lenders we work with won’t require collateral.

4. Do I Have the Money To Pay Back The Loan?

Determine exactly how much you need and how much you can afford, continuing from point two. When you wish to apply for, let’s say, $200,000 but only make $100,000 per year, you simply hurt yourself. To make sure you won’t borrow more than you can afford, the lenders we use and recommend look at your business bank statements and the amount of revenue your company generates. There are situations when you will need to provide strong financial projects to other lenders, especially banks. Even if they don’t use or want them, calculating your repayments and creating some fictitious estimates for yourself might be a useful exercise. A plan is usually helpful, and you also need some wiggle room for your financial obligations. We can also assist with a road map if you don’t have one.

5. Will the Funds Aid in My Businesses Growth?

The question of what the loan is for and how it fits into my business plan is rather straightforward. It’s acceptable to take out a loan to cover operating expenses and improve cash flow, but make sure you’re tracking the Return on Investment (ROI). You don’t want to be in the same situation and taking out another loan six months from now. It’s all about expanding your firm, thus you want to make the most money possible from the loan. You decide whether to do it by expanding your stock selection or investing in marketing.

6. What Is the Credit Score of My Business?

Like the first point, a lot of lenders demand a credit check. Instead of applying directly with the lender, you can obtain your company’ credit report from a credit reporting bureau. This way if the lender does have a minimum credit score requirement you will know before applying. In saying that, before to applying, it’s a good idea to review your credit report on your own or with us. Sometimes information is reported incompletely or erroneously. Make sure everything is correct because these errors can lower your credit score. After you have a copy of your credit report, you can take steps to raise it before applying.

Although some of the lenders we work with will still lend to someone with a less-than-perfect credit report, we can frequently offer advice on how to improve it if we can see your credit report. Thus, I always advise contacting us so we can look at it before taking any action.

7. Do My Personal Finances Look Good?

Banks will typically ask to see your personal financial statements until your business has reached a significant scale, such as making seven figures in revenue. These range from unpaid credit card balances and outstanding school loans to mortgage repayments. This makes it important to be aware of both your personal and corporate credit scores.

One of the key distinctions between lenders is the requirement for credit ratings, though with some of the lenders we work with, you might not have to worry about it as much and again it is all about providing you the business owner with choice.

8. Do I have all the required paperwork?

Many small business loans never reach their conclusion, not because the business didn’t qualify, but rather because they were unable to provide the required paperwork. It can prolong the procedure and increase your risk of rejection if you are unable to provide the paper trail or if you take too long to put it together. Banks are renowned for demanding a tonne of paperwork, which frequently makes the application process take longer. A lot of lenders may still need the same documentation, such as business plans, bank records, and the like, so it’s a good idea to get this process started.

Certain lenders may want your business’ tax returns depending on the amount you may wish to borrow, so it’s a good idea to know where and how to get your ATO information. It is more crucial than ever to keep your tax information current, as failure to file tax returns and any unpaid tax debt can damage your businesses credit rating.

But just like with anything else, if you do require assistance in getting things organised, we can offer a checklist of what needs to be done to ensure that your documents are in order and that you have the best chance of getting approved.

9. Do There Exist Any Further Fees?

This one is cunning! Verify that your loans don’t include any unstated costs, such as establishment, recurring monthly, or early or late repayment fees. The major price is an early payback charge! Although some lenders may promise to waive early repayment fees, you will still be required to pay the total interest even if you make your payments early. Hence, paying early won’t benefit you as much as you would have thought. While requesting a loan, be sure to ask all the above- mentioned questions.

10. What Kind of Loan Do I Need?

Several alternative loan options may be available, depending on the lender. The typical term loan typically meets the demands of most firms, but it’s wise to consider all your options. Banks can lend more money and typically have more funding choices. Despite this, loan applications with non-bank lenders are typically processed much more quickly. It all boils down to the specific finance requirements of each business: do you require a big sum of funding? Continual credit lines? A little loan now and another minor loan coming up soon? There are many different lending choices to consider. As every business is unique, we are here to help and direct you as you go through the process.