Important Questions to Ask Yourself before Going for a Small Business Loan

Important Questions to Ask Yourself before Going for a Small Business Loan
Important Questions to Ask Yourself before Going for a Small Business Loan
August 29, 2016

If you are small business owner or a starter, you must consider applying for a small business loan. This is a big decision in your life, and to make the process easier we have compiled a list of important questions you need to ask yourself before you do this. It is always easier to do things once you have them mapped out in your head, and this article is here to help.

You can apply for a loan or look for an investor

Are you looking for a loan or an investor? This is the question you should ask yourself first. But to get an investor, you really have to impress someone with your business plan, enough to make them want to invest a large sum of money into it. This is a better option if you are just starting your business, because most banks don’t give loans to new entrepreneurs.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

You need to see if you are able to afford a loan

This is a decision that requires planning it for a long term basis. You need to see if the new funds are going to be enough to get your business going and how it will affect your finances in at least the next two years.

The bank has certain criteria when approving a loan

You will need to meet some requirements of the bank if you want to get the loan, so the best thing to do is to prepare them before you apply. Things like making your business plan to the best of your ability, having good credit, having a healthy cash flow and so on.

For a secure loan, you need to have collateral

If you are planning to apply for a secure loan, you need to have enough collateral. Just remember that pledging your personal property as collateral is a very risky thing.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

Ask yourself how much money you need

This is the time to make a really good business plan and to see how much money you will need to make your dream a reality.

Take care of your personal finances before you apply

Make sure that all your personal finances are in order and preferably that they are separate from your business finances. Some banks are going to ask to see your personal credit and they will want to know if you have any other loans or a mortgage.

Make sure that you have all be documentation

This can seem like a small thing compared to all the others, but you simply need to make sure that you have all the needed documents. Research shows that many applicants get rejected on the grounds of not having the necessary paperwork.

Read also: What You Never Knew about the Small Business Administration Loans

You need to know how long the process lasts

Ask your bank how long it usually takes for the whole process of getting a loan to actually having money on your account. Maybe you need the money within the week, and your bank takes more time than that to even approve your loan.

Ask them about the interest rate on the loan

And the last thing you should do is to ask your bank how high the interest rate is going to be, to see if you can afford that. You will know how much the bank is going to earn and how much you will need to pay back.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • There are some things to know when you apply for a loan.
  • The best thing you can do is plan things very carefully.
  • You can get an investor instead of a loan.
  • Making a perfect business plan can help you along the way.
  • You need to see how the loan will affect your finances.
  • Calculate how much money you are going to need.
  • You need to have good credit and a healthy cash flow.
  • See if you have enough collateral for a business loan.
  • Ask about the interest rates of your loan.
  • It is good to ask how long the process of getting a loan takes.

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