If you’re in the market for a business loan, you will need to make sure you’re doing enough preparation to give yourself the best chance of being approved for one. Lenders will not usually provide large loans, especially to small businesses, unless a variety of criteria is met. So, if you’re about to apply for a small business loan, make sure you are aware of some of the key questions that might crop up when you begin conversations with potential lenders.
In this article, we’ll discuss 7 of the most common questions asked to small businesses owners during a loan transaction. As long as you have sufficient answers to all of these, you should have no trouble securing a business loan and accelerating your business growth!
What is the purpose of your loan?
It might seem obvious, but lenders will need to have a detailed account of why you are requiring a small business loan. Whether you need the funds to pay outstanding bills, expand your team or improve your service offering, there are a number of reasons why small businesses might require additional funds, and lenders will want to be reassured that the purpose of the loan is carefully considered.
What are your credit profile details?
This is likely to be one of the first questions you are asked when approaching a lender. Without a healthy credit score, you may not be in with a chance of receiving a loan at all. Anything that appears in a credit report that is of interest may be brought up, so make sure you are prepared to answer any questions around dips in your credit score. If your score is positive overall, all you will need to do is provide the details.
What do you have to use as collateral?
Some business loans will require security, meaning you will have to give a personal guarantee, a debenture or even a charge on your property in certain circumstances. Depending on the type of loan you are applying for, the security will differ, but there are many options that do not require tangible assets as security. It is usually helpful to have an idea of what you could offer up as security before having your first business loan discussion.
Do you have your personal and business financial information available?
In order to check that you are a worthy candidate for a small business loan, lenders will want to have an overview of not only your business finances, but your personal finances too. You will likely have to provide a few months’ worth of business bank statements and latest company accounts. Generally, lenders will be interested to know about any existing loans the business has, as well as details of your personal / business assets and their worth. Note that if your business has multiple owners, you will likely have to supply financial details for each.
How will you grow your business with the money?
While you will of course be asked what is the purpose of your loan, as mentioned previously, lenders will also need to know how you are planning to use the money, in terms of your long-term business plan. More often than not, if lenders can visualise the impact of their funds, they will be more likely to accept your loan application as they will have a clearer view of how quickly your business will grow, and therefore how prepared you will be to repay.
Do you have an idea of how you will repay?
The key issue for the lender is always the repayment of the loan – without being able to trust that you will have the ability to repay within the specified timeframe, there’s little chance they will lend to you in the first place. If you can provide detailed information regarding repayment, for example, a monthly budget breakdown, there is a much better chance of you being accepted.
How much money do you need?
The all-important question. How much money are you looking to borrow? Before you go straight in with a figure, make sure you have conducted your research, and that you can confidently answer the questions above. Try to provide as specific an answer as you can, as this will give your lender more confidence that your reasonings for requesting the loan are well thought out.
Are you ready to apply for a small business loan? Preparation will be the key to success across all your new business endeavors, but especially when it comes to a loan application. Contact a business loans specialist today for assistance getting prepared to start the process.
About the Author:
George Holmes is a Business Funding Specialist and Managing Director at Aurora Capital, a team of independent finance owners who help businesses thrive and achieve their long-term goals.
