Loans for small businesses can seem difficult and complicated, but they don’t have to be! In fact, we think that with a few simple questions, just 4 for you and 4 for your lender, you can find the perfect small business loan for your needs.
Questions to ask yourself.
1. Why do you need the capital?
In other words, why do you need a small business loan? Knowing and being able to articulate the loan purpose will help answer some other questions about which loan option might be best, timelines, and more! The purpose of your small business loan will help you identify if you want a short-term working capital loan or a bridge loan. Knowing these basics, how much you need, and timeframes are essential to getting a loan that will fit you and your business needs.
What are the benefits of a short-term loan versus something long-term? Generally, the shorter the loan term, the higher the payments, but the lower the total cost. As longer-term loans typically have lower payments, but the total cost includes more interest accrued over the life of the loan.
2. What size small business loan do you need?
No, ‘as much as I can get’ is not the right answer. The right answer is “just enough.” Strategically borrowing “just enough” will allow you to pay it back within your means. Look at what your needs are and consider your return – how much more money can you make with additional capital?
Also, knowing how much capital you need can help you narrow down your lender options, as some lenders may specialize in larger or smaller loans than you need. Many lenders may specialize in certain loan sizes or in certain industries. Alternative lenders offer more flexibility with loan amounts, while banks typically lend much higher amounts.
3. What is your credit profile?
Your credit profile can really make a difference – and this includes your personal credit score and your business credit score, coupled with your business’s cash flow. We call this the “health” of your business. Many business owners do not even know their business credit profile, so it’s important to understand how it works and how it can be improved.
Your business credit profile is important because your personal credit score might not always be an accurate measure of your business. Also, remember that different lenders have different scales for creditworthiness.
4. How quickly do you need the capital?
Again, this is a straightforward question that can have a large impact on what type of loan you get for your small business. Do you need capital now or want the relief of knowing you’re approved for capital? Then a working capital or bridge loan may be best, as these have faster turnaround times. Timely access to capital is valuable.
Understanding not only why you need a loan, or how much you need, but when you need it is the last foundational question you should ask yourself before moving into any application process.
Questions for your lender.
1. Do you work with my business and industry?
Some lenders specialize in specific industries, or, they may have industries they do not work with. Just like knowing the loan amount you need can help you narrow down who you work with, knowing what industries they have experience with can help your process as well. Ask this question early so you don’t waste your time with lenders who do not have the experience or expertise working with companies like yours.
2. What is your application process and timeline?
If you need the capital quickly and you find the perfect lender with competitive rates, great communication, and the perfect terms, but they cannot get you the loan you need in the timeframe you need – then they really aren’t the perfect lender for you. Be sure you ask about their application process and its timeline in the beginning, so you know if they fit your basic requirements even before you get into the deeper details.
3. What are your small business loan terms?
This, and the next question, are some of the most important, as the length of time you have to pay back your small business loan amount, and what the total price will be, are paramount.
Ultimately, shorter terms equate to paying more over a shorter period of time, while longer terms equate to paying less over a longer period of time. And though paying off your loan as quickly as possible saves you money in the long run, you have to make sure it is realistic too. A working capital loan for inventory can be paid back quickly, while a small business loan for an expansion or second location will most likely have a longer term.
4. What are your interest rates and total costs?
Make sure the communication on interest rates and total costs are clear and the lender is transparent, as good communication is key in any business transaction, especially when loans, terms, due dates, and fees are involved.
Contact Probably Funding today!
We look forward to partnering with you, and your business, and helping you reach your growth and goals! Contact us today to learn more or apply online today!
Disclaimer.
This Probably Funding blog post is purely educational and features general information and opinions. Nothing contained herein is intended to constitute advice or recommendations and should not be treated as such.