KEY QUESTIONS LENDERS ASK SMALL BUSINESS OWNERS
1. HOW MUCH MONEY DO YOU NEED?
This may seem straightforward, but it’s crucial to know precisely how much funding your business requires. Lenders want to see a clear, specific amount rather than an estimate. They’ll expect you to have calculated your needs down to the last cent. This demonstrates financial discipline and shows that you’re only borrowing what you genuinely need. Get more info about legal money lender
2. WHAT DOES YOUR CREDIT PROFILE LOOK LIKE?
Your credit profile will be one of the first things a lender checks. They may review both your personal and business credit scores to assess whether you’re a responsible borrower. Good credit can be a strong indicator of reliability, while a poor credit history may require you to explain any past financial issues. If you have a solid credit profile, the lender is more likely to proceed with further questions.
3. HOW WILL YOU USE THE MONEY?
Lenders want to know exactly how you plan to use the funds to help your business grow. Vague answers aren’t sufficient; you need to provide specific, practical details. For instance, if you’re buying equipment, explain why it’s essential for your operations and how it will contribute to revenue growth. Good answers might include “expanding inventory” or “boosting working capital,” as these uses demonstrate how the loan will strengthen your business.
4. HOW WILL YOU REPAY THE LOAN?
Lenders need reassurance that your business will be able to pay back the loan, even if challenges arise. You’ll need to provide evidence of sufficient income, assets, or personal savings to cover loan payments. Additionally, they may ask about your current financial obligations and whether you have past debts. Lenders might also request recent tax returns or other financial documents to assess the overall health of your business.
5. DOES YOUR BUSINESS HAVE SUFFICIENT CASH FLOW?
A healthy cash flow is critical for loan approval, as it indicates your business can meet monthly payments. If your business is already operational, showing a consistent, positive cash flow is ideal. You might need to provide a recent balance sheet or a profit-and-loss statement to demonstrate this. If you’re a new business, lenders may want to see evidence of previous success in similar ventures, or they may assess your industry knowledge and planning to gauge your likelihood of success.
6. CAN YOU PROVIDE ANY COLLATERAL?
Collateral is an asset you can pledge as security for the loan. If you default, the lender can claim this asset as repayment. Collateral is often required for bank loans or SBA loans, but some lenders may instead ask for a personal guarantee. With a personal guarantee, you’re personally responsible for the loan if the business fails, which is less tied to specific assets but still a serious commitment.
7.IMPORTANCE OF THESE QUESTIONS
It’s normal to feel overwhelmed by these questions, especially if you’re a new business owner. However, these questions help lenders gauge the risks and rewards of lending to you. By thinking like a lender, you can prepare thorough, honest answers that show you’re financially responsible and committed to your business.
