Applying for a business loan is a big step in launching your business and can be an intimidating process. Before you start the application process, there are some key questions that you should be asking yourself to ensure that the process runs smoothly. Here are six questions to help you prepare for the journey of applying for a business loan.
What is Your Credit Score?
Your credit score will make or break you when it comes to securing a loan. To make sure that your credit score is up to par, get your credit report from multiple places before submitting any applications. This will give you an idea of how lenders view your information and what potential loans might be available to you.
How Much Do You Need?
Before applying for a loan, it’s important to determine exactly how much money you need so that you don’t end up taking out more than necessary or not enough capital to achieve success. Take into account all of the costs associated with running your business, from operating expenses and payroll to inventory and marketing costs. Once you have an estimate of the total amount needed, add a 10-20% extra cushion in case something unexpected arises during the course of your business operations.
Do You Have Collateral?
When applying for business loans or lines of credit, most lenders will require some form of collateral as assurance that they will recuperate their losses if something goes wrong during repayment. Common forms of collateral involve real estate properties, equipment, vehicles, and other investments owned by the borrower. Be prepared with an acceptable form of collateral in case it is requested by potential lenders.
What Is Your Repayment Plan?
It’s essential that borrowers create and stick with a repayment plan in order to pay back their loans on time without issue. Most lenders prefer shorter terms as they result in higher monthly payments which help them get their money faster. However, if monthly payments are too high they may look elsewhere so make sure your payment plan is realistic yet beneficial for both parties involved.
What Are Your Alternatives?
It’s also important to research other alternatives such as grants or investors who will offer financing without requiring collateral or extensive paperwork – especially if the lender demands more than what was expected initially or if the rate offered does not meet expectations. Having options gives greater leverage during negotiations and allows borrowers more freedom when deciding which route best suits their needs financially speaking.
What Are Your Goals?
Finally, never forget why you are taking out this loan in the first place. It’s important to have clearly defined goals before entering into any agreement with potential lenders regarding repayment plans, fees, interest rates, etc. When setting goals think short-term (6 months), mid-term (1-3 years), and long-term (5+ years). Knowing where you want your company to be at each stage helps guide decisions related to financing so that they align with future objectives.
Applying for a business loan can seem like an intimidating task but being prepared makes it easier. Asking yourself these questions before applying will help pave the way toward success and enable informed decision-making throughout your journey toward securing funding for your business venture. With these 6 key questions answered beforehand, borrowers can feel confident about approaching potential lenders knowing their facts are clear-cut and well-researched.
