Whether you’re trying to get a business off the ground or expanding one, a small business loan can give you the resources you need to either get started or to grow.
Loans can help you fund research and development for new products, expand into new locales, broaden your sales and marketing efforts, hire more staff, or even just buy office equipment.
Today, there are many different types of loan products that cater to small businesses.
From traditional banks to newer alternatives such as fintech companies, it’s important that business owners understand the different options available to them, what requirements are needed and how to find the right loan advisor that would help them navigate the ins and outs of business financing.
We have outlined here the nine important questions that the right business loan advisor should be able to help you answer:
But first, ask yourself: “What will I use the funding for?” Why does your business need a loan in the first place? Ask and prepare yourself for this question because all (responsible) loan advisors will. Generally, your answer will fall into four buckets:
Take the time to figure out the answer to this question because it can inform you of other considerations, including the type of loan you need and the kind of lender you should approach.
Questions to ask your small business loan advisor: Questions like the reason for taking out a loan are easy to answer on your own but a loan advisor can offer you experienced advice and invaluable market knowledge.
When you meet with an advisor, here are some important questions you should bring up:
How much money do I really need?
Your loan advisor should be able to guide you in figuring out the right amount of loan to take out, depending on business needs and goals.
The right loan advisor can help you estimate how much capital you truly need, help you avoid underestimating or overestimating how much money to borrow, and avoid the trap of falling into business debt.
An advisor will take your purpose for taking out a loan into consideration and help ensure that your loan amount is big enough to pay for your business needs.
At the same time, they make sure that it’s not so much that you’ll find yourself unable to afford your amortizations.
What kind of funding options are available to me?
Today, more and more non-traditional or alternative funding options have become more readily available.
Your loan advisor can act as your guide to this myriad of funding options, helping you choose the one that fits your business goals and size.
Most experienced loan advisors should be familiar with federal, state and municipal loan programs and have relationships with banks as well as alternative lenders.
As an overview, Nerdwallet outlines the best types of lenders to approach depending on where you are in your business lifecycle. Your loan advisor should be able to give you more details on each of these:
• You can provide collateral.
• You have good credit.
• You don’t need cash fast.
• Traditional bank options include term loans, lines of credit and commercial mortgages to buy properties or refinance.
• You can’t get a traditional loan because your company is too small.
• Microlenders are nonprofits that typically lend short-term loans of less than $35,000.
• You lack collateral.
• You lack time in business.
• You need funding quickly.
• Credit ranges from $500 to $500,000
• Average APR on these loans ranges from 7% to 108%
Have you catered to other businesses within my industry?
Many loan advisors specialize in working with businesses from specific industries. Some also specify which industries they don’t work with.
Identifying or asking this question early on will help you avoid wasting time on institutions that won’t be able to help you anyway.
Some lenders also work the same way so your loan advisor should be able to tell you which lenders specialize or, conversely, don’t work with businesses in your industry.
How long does the typical loan application process generally take?
Some lenders only need days to process your applications, while others could take months before they can get back to you with an answer.
Depending on the urgency of your need, you’ll want to ask this question early to determine whether you have the time to work with that particular lender or not.
What are the interest rates and total dollar costs?
Asking about interest rates is a given but some first-time business owners might not be aware of other costs such as set-up and discharge fees or even admin charges that they could incur.
Your loan advisor or potential lender should be able to outline and be transparent on all these costs so you can make an informed decision.
What are the typical payment schedules of different lenders?
Your loan advisor should be more or less familiar with the most common payment schedules of the different lenders available in your area and advise you on the benefits or challenges for each.
For example, if one potential lender requires daily or weekly payments, then it’s important that you’re prepared to have a ready cash flow week on week. This might not be ideal for all businesses.
What are the requirements I need to prepare to get approval for my loan?
Once you’ve figured out what type of loan you need or which lender is best to approach, your advisor can help you prepare a loan package to bring to your meetings.
A loan package should include all of the basic requirements as well as a few more documents to support your case better. Typically, it includes:
• Business plans
• Personal and business tax returns
• Business balance sheets and income statements
• Personal and business bank statements
• Personal and business credit reports
• Legal documents such as articles of incorporation, commercial lease or franchise agreement
• Financial projects
Are the loan terms a lender has offered me good?
Finally, after preparing all the requirements, approaching the right lender and getting an initial assessment, you can still approach your business advisor to check if you’re able to get the best terms possible.
Before signing an agreement, consulting with your advisor can help you to review the fine print and terms and conditions much better.
Working with the right business loan advisor can help you be more successful in getting loan approval as well as help you avoid the common pitfalls of being unprepared to handle business loans.
But, you also need to do homework to find the right loan advisor and ask the right questions.
Kimberly Tan is a financial advisor who loves to freelance writing about money. She’s been an advisor for over five years. Kim is very passionate about helping people in managing their finances and seeing them succeed in it. Read more of her writing on surviving business debt here.