5 Questions to Ask before Applying for a Business Loan
Whether you are a startup needing a bigger capital or an established local business looking to expand, a business loan may be something that you are considering. There’s nothing wrong with that because most companies have to get a loan at one point or another. However, taking out a small business loan may be more difficult than you might expect, especially when you consider all the intricate details.
Before you start filling out paperwork, here are five important questions to ask yourself first:
1. “Will Taking a Loan Help My Business?”
This should be the first question you should ask yourself. Sure, it’s a good idea to get more money for your business, but you want to be sure that you carefully consider the ROI. You want to make the most of the loan you are getting, so think about the purpose of applying for a loan. If you believe that loan will keep your business running for only three months and then get another one, you might want to rethink this step. After all, you want to stay afloat, not drown in debt.
2. “Will My Business Be Approved?”
Take some time to figure out whether or not your business will qualify for the loan. Most lenders will share information on how to get a loan and post their requirements on their websites so that you can check them before you start applying. You may also want to call them to get other vital information that you need. Keep in mind that taking out a loan is a huge financial step, and you don’t want to risk hurting your credit score should you be denied. It’s best if you can also get a business credit report to know where you’re at and take the necessary steps to give your credit score a boost if needed!
3. “What Type of Loan Should I Get?”
Determining this question depends on whether you choose to go to a bank or a non-bank lender. You can also choose from these types of business loans:
- Secured loans require collateral that you can borrow against. This means lower interest rates but remember that the lender will claim your asset if you fail to pay.
- Unsecured loans don’t need collateral, but interest rates are relatively higher.
- Equipment finance is the right choice if you’ll use the money to buy new equipment or vehicles for your business.
- Invoice financing allows you to sell your invoices to get advance cash.
- Line of credit is for which you get approval for a certain amount and pay interest only for the amount you use.
- An equity loan allows you to get a loan against a commercial or residential property.
Remember that you can also talk to the lender to learn more and determine which option will be best for you. Non-bank lenders typically have easier loan processes, and you might get approval faster, so you might want to consider that.
4. “How Much Should I Borrow?”
Here’s a vital point to consider: A lender might tell you that you are eligible to get up to a specific amount of money, and you might be tempted to go for it. However, you should always second guess yourself unless it is necessary. Other than taking out more than you actually need, you might also end up having trouble repaying. For this reason, make sure to borrow just enough to benefit from it!
5. “Can I Repay the Loan for Sure?”
No matter how much you decide you borrow, you have to be sure that you can afford to repay it. Does your small business have enough cash flow to cover the loan payments and continue operations? You won’t move forward and get to where you want your business to be if you borrow too significant an amount and then fail to repay. This will ultimately hurt your business’s credit rating and affect your opportunity to take out another loan in the future.
Getting a loan for your small business is a major financial decision and one that must not be taken lightly. Make sure to ask yourself the questions above before you apply for one. Likewise, you must have a clear understanding of how business loans work and what’s expected of you. When you’re ready to get a loan, be sure to choose your lender wisely!
Business Loan Experts is one of Australia’s best loan companies that you can turn to if you need funding for your business. Our financial experts are happy to answer your questions and assist you with your application when you’re ready. Get in touch with us today to see how we can help!