Taking a business loan is a challenging task. Hence, preparing on your part by answering a few questions before taking a business loan is important! Also, it can go a long way in successfully running your business. Below are the questions you should ask yourself before taking a business loan or will be asked by the lender himself before funding your business.
What Is Your Business Plan?
Creditors base business loan eligibility criteria on the business plan, among other factors. You must also highlight adequate contingency schemes to give your plan a more reassured look. Considering the various socio, economic, and political factors will help you develop a concrete plan.
How Much Money Do You Need?
This is an obvious question, which requires a careful answer. A correct estimation of the funds shows fiscal awareness and entrepreneurial maturity on your part. You must break down the use of money at each stage of development to enhance the chances of funding.
What Is Your Business Financial and Credit Score?
Keep the lending history of your business with you while approaching any lender. It includes, Current and past loans details, current debts incurred and investment and credit card accounts. Along with business financial details, your lender will look at your credit score. A credit score highlights the financial health and trustworthiness of your business. It is one of the most vital parameters that can decide interest on business loans.
Learn More : How Lenders Determine Your Eligibility for Loan?
What is the Financial Statement of Your Business?
Financial statements include the balance sheet. It lists out your business assets, liabilities, and capital. When you present an audited statement to your creditor, there are chances of business loan interest rates going down. Because of extra steps taken by an external auditor, these statements are more likely to be error-free. You must at least have profit and loss statements of the past three years.
How Will You Use the Loan Proceeds?
As an entrepreneur or business owner you need to know how much return will your business loan give for return on investment (ROI). A careful approach on your part in investing the loan amount for a productive business operation goes a long way in securing the funds at competitive interest rates. A detailed plan for the expenditure of loan amount is critical in the application process. Expenditure data along with ROI figures allay fears on the part of the lender.
Where Are Your Personal Financial Details and Credit Score?
Note that your personal financial details also form an important part of the queries made by potential lenders. Personal financial details include your net worth and details on assets and liabilities like investment accounts, credit card accounts, vehicle, and home, among others.
Read More : How to Keep a Business Afloat and Manage Debt?
With increasing cases of bad loans, lenders have become more cautious and use personal financial details and credit score to judge business loan eligibility criteria. A good personal credit score has a positive impact on the creditor.
Does Your Business Have the Ability to Repay the Loan?
From a business owner and investor’s point of view, loan repayment is the biggest concern. As a businessman, your best bet is to list out similar profitable ventures in the past. Some lenders ask for a collateral if there are doubts about repayment.
If you’re not sure about your repayment ability, then do not take a loan. The debt will acquire interest; The longer it takes to repay; the more trouble your business will get into.
What Is Your Repayment Strategy?
The chances of loan approval hinge on your repayment strategy. Lenders need a clear strategy to gauge the safety of their investment. They want reassurance that you will survive the difficulties of business and still repay the loan.
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