When looking for a loan for your small business, it is important that you ask the right questions. Asking the right questions help you avoid surprises, plan how to spend your additional working capital, save money and more.
In this post, we will list questions that you should ask your business loan lender. We will also explain why it is important to get the answers to these questions to navigate the small business lending process.
Questions to Ask a Lender Prior to Taking Out a Loan
What do I need for the application?
Ask your small business financing lender this question so you can have all the documents ready for your loan application. Even if you already have the document, you can still ask because they might give you more insight into their application process.
How long does it take to get approved?
The approval time varies from lender to lender as well as if you are looking at different types of loan products. Approval on a business loan from a traditional bank can take a month or longer.
Approval on merchant cash advances can be granted in a week or less. Make sure that you know the approval timelines with each loan you consider and lender you interview.
Are there any restrictions on fund usage?
It’s important to know what restrictions apply to what you can use your loan amount for. It would be inconvenient if you signed a loan agreement to only find that you can’t use the funds in the way you wanted to. For example, the SBA has a 7(a) loan program in which they have restrictions for how you can use the funds.
How long does it take for funds to be released?
Small business financing can take a short time or a long time for the funds to be released. The lender might give you a timeline so you can properly plan.
Is prepayment allowed?
It is good to know what your options are when it comes to paying off your small business loan. Certain lenders charge high fees if you pay off your loan early. Make sure you ask if prepayment is allowed and what the fees will be if you prepay. Keep in mind that some lenders offer discounts for early payment.
How does the repayment process work?
The details of your loan repayment process have a huge impact on the cash flow, so you need to know how repayment terms work. If your payments increase and you are not prepared, you might be unable to make your loan payment. Your credit score will take a huge hit if you don’t make your loan payment.
How does your renewal process work?
You will find a business financing lender that you want to work with or maybe you need to borrow additional money for projects later on.
Depending on the online lender, you can renew your business loan to access additional capital before or after your loan balance hits zero. However, different lenders have different policies, so it is an important question to ask.
Do you lend to other companies in my industry?
While you’re right to focus on logistics like payment schedules, conditions, loan terms, and more, do not ignore your lender’s industry experience.
The Bottom Line
To find the best small business lender for you, you need to ask questions. Think carefully about your situation and what potential complications you need clarified.
If you have bad credit for example, you should be upfront about that with your lender and ask them how they can help. It might mean that your application will be rejected but you will be closer to finding the right fit.