Applying for a business loan can be overwhelming, and navigating through the process can be daunting if you’re not prepared. Asking the right questions and ensuring you’re working with a lender who can meet your needs will help the application process go much smoother. When the time is right to reach out to a lender, what questions should you ask?
To make sure you’re a good match with a lender, the first question you should ask is if your business meets their lending requirements.
Not all lenders loan to all businesses, so it’s best to know from the start if your business qualifies. Once you’ve found a lender who works within your industry, you’ll want to make a list of questions to ask.
What Are Your Qualifications?
It’s important to know what qualifications the lender is looking for before applying. The lender may want to see your business plan, financial records, bank statements, business reports, audit reports, corporate papers, and taxes. They might also require collateral. Know the documents you’ll need to streamline the process. It can also reduce the time it takes to receive approval—another question you’ll want to ask. As well as how long it will take from the time of acceptance to the time of closing.
What Are The Loan Types and Interest Rates?
It’s important to review all loan options available for your needs. Including the interest rate and any fees associated with the application. Such as pulling a credit report and underwriting fees. Before signing any papers, you should know the total you’ll repay, so you can determine if it’s affordable for your business. Lastly, understand whether the loan’s purpose will give you the return on investment that you need.
What Is Their Payment Schedule?
Make sure to ask for the payment schedule and when the first payment is due. Knowing this before you enter into a contract is crucial. Some lenders will require the first payment a day or two after the loan is executed. That can come as a surprise if you aren’t prepared to make the first payment right away.
Ask how payments are to be made. Will they be automatically deducted on the same date each month? Is it withdrawn via ACH (Automated Clearing House) payment services, and will there be a fee? When the due date falls on a weekend or holiday, is payment due the day before or a day later?
You should also ask if it’s acceptable to pay over the amount due from time to time and a limit to the amount of overpayment. Some lenders might have overpayment limits. Be sure to know the exact terms, so your payment is on time each month.
Is There An Early Payback Penalty?
Be sure to ask if there’s a penalty for repaying the loan early. Some lenders will penalize you for paying off a loan too soon. If you feel you can make larger payments in a shorter term, it’s best to do so to avoid any early payoff fees.
Be clear about your intentions before taking out a business loan. Ask yourself some tough questions, such as how much you need, how much you can afford to pay back, and if you need the loan.
If you determine that you want to proceed with a loan, be sure to vet all prospective lenders. Please don’t be shy about asking other business owners who they do their banking with and ask for lender recommendations. The more knowledge you have, the less frustrating the process will be