Although it’s easier than ever to secure a small business loan, that doesn’t mean you should jump the gun. Instead, before you apply for a loan, there are several critical questions to answer.
By focusing the proper amount of time and attention on these five questions, you’ll find yourself in better position to decide what to do next:
1. Why do you need a small business loan?
You shouldn’t apply for a loan because it sounds like a good idea. You should only apply for a loan once you have a clear idea of how you’ll use the funds.
- Do you need to purchase new equipment?
- Do you need more inventory?
If you have a reason for wanting a small business loan it’s much easier to proceed with confidence. It’s also much easier to put the money to good use when the time comes.
2. How much money do you need?
Many small business owners believe that more is always better. While this may be true with some things, such as revenue, it’s not the case with a loan.
This goes along with knowing why you need a loan. Once you know why you require funds you can then decide how much money to borrow.
Remember this: it may be easy to secure a loan, but you still have to pay back the money. You don’t want to bite off more than you can chew.
3. What is your credit score?
Even though your personal credit score may not be indicative of your company’s financial health, it’s something that most lenders look at.
If you have an excellent credit score, it’ll go a long way in helping you secure a small business loan. Conversely, if you have an average or bad credit score, you’ll find it much more difficult to get a loan.
Tip: here’s an article that explains the best way to check your credit score. You’ll want to do this before you apply.
4. Which lender is best?
With hundreds of lenders providing small business loans, you won’t have to look far to find several for your consideration.
While a large selection is a good thing, it can also bog you down. This is why it’s so important to leave enough time in your schedule to compare a minimum of three to five lenders.
In addition to local lenders – such as the one you bank with – consider both national and online financial institutions.
5. What’s the process and timeline for getting a small business loan?
Every lender has a slightly different process, so check on this as you compare your options.
Also, find out the following:
- How to complete your application
- How long it will take to receive a final decision
- How long it will take to receive the funds (if you decide to move forward)
Answer these questions if the time comes to apply for a small business loan. By doing so, you’ll better understand your options, which loan type and lender is best, and how to push the process forward.