Whether you start a new business or looking to expand the existing one, money plays a vital role in the entire process. At that time, most people prefer a business loan to accomplish their business goals. As the demand of loan is increasing day by day, government bank and other financial institutions introducing different types of loan and its policies based on your business needs. However, its not an easy procedure. Sometimes, if you are applying for a loan it involves more formalities than filling out paperwork. Later on you need a complete information about every aspect of your procedure.
Whatever the size and type of lender you choose for your small business loan, here are some questions that you have to clarify or understand before signing your loan application.
- How much money do you really need?
Before you approach the bank for a loan, make sure to determine the money you really need to establish your new business or to expand the existing one. Although, it is a very common thing, but it includes several sub questions that are important to understand to make your loan process successful. Does your customer pay you in 60 days? Or How many numbers of employees you need to hire?. All these terms directly affect your amount of loan that you needed.
- What do you need the money for?
If you need to finance a big piece of equipment, then it’s likely that you’ll want to get a lease or a loan to finance that equipment. That reason can also help you to differentiate the type of loan according to your need. Sometimes, you need a loan as capital to start a business or sometimes for purchasing business equipment to expand your business. Your requirement is very important to identify before applying for a bank loan.
- How much you can borrow?
The amount that you borrow totally depend upon the bank, as you are not able to borrow the same amount of equipment that you pledge as collateral. Banks will value your asset below what you think the value should be, and then they will only lend up to a certain percentage of the value of the asset. Different banks and financial institutes lend up to a different percentage of the value of the asset.
- What is the likelihood of approval?
That question you need to ask to banks about their specific requirements before applying. In different types of loans you have options to pledge different equipment or assets as collateral. Different banks have different paperwork and terms written in the loan application. The loan will be approved after you submitted all the important documentation.
- What are the loan’s specifics?
That means – What are the standard terms and conditions?. That is the most important question you need to clarify before signing a loan application. Sometimes, we do not clearly understand or read all the terms and conditions written in the loan application. And, after sometimes we face many problems because it includes some hidden costs.
- Will the money help your business grow?
Applying a loan is enough, you have to consider some additional fact also. If you already decided to apply a loan for business purpose. Then, think about -Will the money help in your business growth or not?. Because, sometimes we spend the money on assets which are not valuable for us. That is why it is important to consider deeply before enrolling a loan application.
- How good is your business credit score?
Most people only consider personal credit score, but the business credit score is also important to consider when you arrange a loan for your business. Don’t forget this one. If you’re in the early stages of getting your business off the ground sometimes this is all you’ve got. Be sure to treat your credit as an asset and remember that the better your credit is, the more funding options you’ll have, and at lower cost.