7 Questions you Should be Prepared to Answer when Seeking a Business loan
Got a business loan pitch coming up? Feeling a bit edgy because you don’t know what to expect? We’ve got you! The truth is, interviews for business loans can trigger anxiety for new and experienced entrepreneurs alike. But, adequate preparation can help you get into your lender’s head and predict what they itch to know about your business.
Keep reading to find out the seven common questions that all lenders ask before approving business loan applications
1. Tell me about your Business.
Before the introductory bunter dies down, this is the first question that might come your way. Now, the lender isn’t interested in the emotional backstory that led you to the business world. But rather, they want to know these three things:
- In which industry does your business fit?
- How long have you been in business?
- What does your business plan look like? ( This should be a detailed outline of your business’ products/services, target market, employees, and future prospects)
- How does your business stand out from the competition?
If you can nail the above questions, you’ll be good to go.
2. What do you need a Business loan for?
Probably, you already indicated this in your application form your intention for seeking a business loan. Your only task now is to convince the loan officer how much you need and how this loan will push you towards your business goals.
For instance, a good answer would be: “I’m asking for $20000 which I intend to invest towards purchasing new manufacturing equipment”.
If you want to ace this part, come up with a genius business plan that you’re familiar with. Back up your claims with facts and figures, and leave no stone unturned.
3. What is your personal credit score?
Granted, this question will trail the majority of your attempts to obtain extra funding for your business. As a business owner, a good credit score reflects credibility in handling your everyday finances and the willingness to pay back your loans. Remember, a lender’s profitability heavily relies on your ability to make periodic payments as indicated on the loan contract. So if you can prove a good history of always sticking to your word, you’re one step ahead of the game.
In Singapore, lenders such as banks and credit unions will demand a credit score above 1000 in order to consider your application.
4. Do you have any Personal Assets?
Depending on whether you’re seeking a secured or unsecured business loan, owning personal assets can make or break your odds of getting a good loan. A secured loan requires an asset as collateral, while unsecured loans require none. The main benefit of a secured loan is that it attracts a low interest rate and a more flexible repayment period. However, the only downside is that the lender is at liberty to convert ownership of your assets in case you defer.
5. What is Your Business Cash flow?
Lenders need the solid reassurance that your business churns out enough income to pay back a small or big business loan. Cash flow questions are therefore inevitable. Specifically, be prepared to answer questions about current sales, business expenses, and future financial forecasting. If you can’t state in clear terms where you see your business in two years, then the business loan might escape your grasp.
6. Can you Share Details of Your Financial Documents?
Answering NO to this question is detrimental to your chances of acquiring a business loan. It simply shows that you’re hiding something, which is a bad impression. Therefore, always bring along financial documents that mirror your business activities for the past year. These should include:
- Personal and business bank statements
- Evidence of past and existing loans e.g. credit lines
- Active investment accounts
- Updated tax documents
- Cash flow statement/income statement/balance sheets
- Proof of identity
Providing these documents will solidify any claims you may have made about your business. Think profitability, future forecasting, and liabilities.
7. What loan Terms are you Looking for?
While no one expects you to be a business loan expert, having a picture of the type of loan you want reflects seriousness on your part. With multiple business loan options available for small businesses, lenders want to know which terms will help you meet your business needs without choking your ability to pay back the loan. Without stutter, state your preferred interest rate, repayment time window, and monthly installments. While the lender may not agree instantly to your demands, you’ll definitely reach a middle ground.
Business loans are great for getting by during tough financial times. Before approaching your lender for a loan, use the tips above to prepare and exceed their expectations.
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