Before getting a small business loan, it’s important that you understand the various products out there, but also your own situation.
As is the case with any loan, whether business or personal, you’re going to be faced with many different options. Each lender will provide you with different loan terms, different loan amounts, and different requirements you have to meet to qualify.
This is why getting a small business loan can be a frustrating process at times. There’s so much noise to wade through that it can be hard to know whether you’re making the right decision.
But, let’s not get ahead of ourselves. Before you actually apply for a loan and then sign on the dotted line to accept the money, there are important questions you need to ask both yourself and your lender.
Asking these questions before getting a small business loan will make the application process easier and ultimately result in you getting a financial product that will help you best.
Questions about your business: ask yourself
Before even approaching a lender about a small business loan, there are some questions you should ask yourself about your business. These include:
1. Why do you need a loan?
This may sound obvious, but it’s crucial that you ask yourself this, that way you can actually truly understand why you need the loan and this will help you find the product that best fits your needs. Plus, it will help you explain your need to the lender.
Why do you need the money you’re seeking? Is it to pay off a short-term debt? Is it to finance a major investment in your company, such as the purchase of new equipment?
Before getting a business loan, you should analyze whether you have other options available. If you have plenty of cash on hand, for example, you may want to simply pay for it with that. Although, even if you have enough savings, you could still get a business loan, as they have some extra benefits like helping you improve your credit score, or keeping a strong cash flow. If you don’t have extra savings or if you just want to leave them in the bank, then getting a small business loan is a great option.
2. How much money do you need?
This is an important aspect of getting a small business loan. Lenders will ask how much you’re looking to borrow and what you’re looking to use the money for. You need to know these answers even before applying.
Also, you cannot ask for less than you need, or you won’t be able to reach your financial objective. And if you ask for more than what you actually need, you may find it a bit more difficult to make payments later.
Determining how much money you really need will help you build a business case for why the financial institution should lend you the money.
It also helps to understand how much profit your investment will make. Use the ROI formula to figure it out.
3. What can you afford to pay?
Small business loans need to be repaid, obviously, but there are many different terms available. The longer the term of the loan, the smaller the monthly payment will be. You need to understand if your current profits can take the expense so the loan will actually help you instead of hindering your finances.
So, work backward when you’re landing on terms. Figure out how much you can afford to pay each month for a loan, and then see if you can adjust the loan term to fit under that budget.
4. What’s your credit score?
Lenders may look at both your personal and business credit score when you’re getting a small business loan. Not only will your credit score and history play a big role in whether you’re eligible for loans, but they’ll also determine what your interest rate will be.
The lower your interest rate, the lower your monthly payment and the less money the loan will cost over the life.
If you have a lower credit score, you may try to boost it before applying for a loan.
5. Do you have a business plan?
Some lenders will ask for a business plan to prove that you have your head on straight. Since they’re lending you money, they’ll be taking a risk, and they want to know that you have a definitive plan for how to succeed with the money.
Even if the lender you choose doesn’t ask you for a business plan, you should have a solid plan of how you’re spending the loan and how you’re going to pay it.
Writing a well-thought-out plan before applying can help you when you’re getting a small business loan.
Questions about the loan: ask your lender
When you decide to get a small business loan, you should try to find a lender that fits your needs and cares about you. Having a lending partner is much better than just a company looking to make money off you.
Some questions that you should ask potential lenders include:
6. Do they require collateral?
Some lenders will require collateral for you to get a small business loan. If you default on the loan, they’ll seek to obtain this item to recoup the money they lent you.
It’s important to ask early on whether your lender requires collateral. If they do, you’ll have to make sure you have it. You may also decide you don’t want to put up any collateral too.
7. Do they have experience in your industry?
Some lenders specialize in lending to only specific industries. Others have a policy not to lend to other industries.
Ask your lender whether they work with small businesses in your industry and if they do anything special for your industry. It’s always good to have a company that has experience with companies like you. It’ll give them insight into why you need the money and ultimately result in a better partnership.
We have experience lending to many industries.
8. What’s the total cost of the loan?
Some lenders will hide behind interest rates to try to get you to accept their financial products. This doesn’t tell the whole story, though.
To see how much you’ll actually be paying for the money you’re lent, you should ask what the total cost of the loan will be. This will take into consideration not just the interest rate but any fees as well.
9. What’s their reputation like?
This is an open-ended question that will allow you to gauge the trustworthiness of potential lenders. Solid small business lenders will refer you to positive reviews on independent sites, show you their Better Business Bureau ratings, and maybe even refer you to other customers who can give you feedback.
If they don’t have any of this to provide to you or only refer you to reviews posted on their own website, then you may think twice.
10. What’s required of me?
When you’re getting a small business loan, you want to know what exactly is required of you. Do you need to provide a Social Security number in the application process, or does the lender accept an ITIN?
You want to find out not just what your interest rate is but what your monthly payment is. You want to know when your first payment is due, how many total payments you’ll make, and when the loan ends.
You’ll also want to know if there’s a grace period for your monthly payment, in case you can’t meet the deadline on the exact date. You’ll also want to know if the lender offers any type of rewards or discounts for paying early.
Getting a Small Business Loan with an Amazing Lender
When you’re getting a small business loan, you’re likely to come across many different loan types and lenders. It can certainly be confusing to wade through all the noise when you’re doing your search.
At Camino Financial, we make the process of getting a small business loan easy. We accept both SSNs and ITINs as a way to appeal to a wider base of people. We provide multiple loan options, both for amounts, repayment terms, and interest rates.
We have experience lending to small businesses just like yours in a number of different specialties.
We don’t require collateral and even reward customers who pay on time by allowing you to “graduate” to better loan terms.
Before getting a small business loan, it’s imperative to know whether you can afford the amount of money you’re seeking to borrow. That’s why Camino Financial provides an easy loan calculator so you can see exactly what terms would be best for you.
Contact Camino Financial today to see how we can help you take your small business to the next level.
We are always looking to help our small business customers in more ways than just lending money. We try to be a true partner with every customer and live up to our motto of “No Business Left Behind.” We do this by offering education and tips for all our customers and being their partners in their lending journey.