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Seven Questions to Ask Before Applying For a Bank Loan
Applying for a bank loan has many aspects to clear and things to think about. Here is a list of few things you might want to ask yourself before applying for one. Inspiration to take a loan is just the beginning, this information shall empower your inspiration in the right direction.
All the small businesses go through ups and down during their business life cycle in which they often feel the need of borrowing some money from different sources (thus creating a need for debt consoliation loans) to cover up the financial issues. To most of the business owners who are in need of borrowing money, banks are the first option that comes to their mind but applying for a small business loan from a bank is not as simple as it seems. Bank loans require you to present a lot of documents and filling out paperwork. Here are seven questions you should ask before applying for a bank loan to save your business from getting rejected for the bank loan which will leave a bad impression on your future credit applications.
Applying for a bank loan and not getting it will affect your business credibility for future applications. Whenever you feel like applying for a small business loan from the bank, make sure you know all the requirements for the approval of your loan application seek help and assistance from an expert in the bank to know all the minimum requirements, which are compulsory for applying for the bank loan and due to shortfall on any requirement your loan application will get rejected on the spot.
While applying for a small business loan, you should ask about the specifications, standard terms and conditions of the loan as it is important to know that because you should know more about the specifications other than just the ratio of the interest rate on the loan. You can also learn about the full repayment demand dates from the lender. As some of the companies prohibits early payments from the borrowers on their loans while some are willing to work on the term of prepayment penalties and some are not willing to negotiate. Instead of knowing these terms and conditions after taking the loan at the time of prepayments or repayments which will create issues be careful in this matter as well to avoid any severe legal action against your business.
Some of the applications forms require some fees or charges to apply for the loan. You should know that if the loan you have applied for will get rejected, in that case whether the fee for the application form to request for a small business loan is refundable or non- refundable. As most of the time, the fees or charges on applications form are non-refundable but it took people by mistake thinking that they will get the application fees back in case of not approval of the loan by the lender.
Sometimes business owners are left with no other option but to apply loan for your business by pledging your assets as collateral. Business owners should be aware of the fact that the amount of bank loan they are applying on the bases of assets as collateral should be 30-40% less than the value of assets as banks always value your assets below than the market value of your assets or the value you think they posses. Banks often lend you money up to 60-70% of the value of your assets set by the banks.
Before approving your business loan, bankers will demand you to provide them with the financial projection of your business. Bankers would go through it in detail to find out whether your cash flow is disrupted or not, and to find a loop hole in your debt repayments to reject your loan. Do not forget to include the debt repayments plan in those financial projections. The approval of your bank loan merely relies on these cash flows projection of your business, if they will find any error in your debt repayment history; it is more likely of them to reject your loan request. Here is a link to information that would help you out with short-term business loan.
The purpose of applying for a bank loan should be very clear and related to the better future of your business. If you are borrowing loan to cover your operating expenses or payrolls etc., then the chances of repayment of debt will get narrow and so does the growth of the business. You should try to invest the borrowed money on those parts of the business through which you
will generate more revenue which will be beneficial in both ways for the debt repayment and business growth and better future of your business.
You should have the knowledge related to the documents that mandatory to submit along with the application form while applying for the small business loan in the bank. If you go to the bank without these documents, it will reflect your non-serious and unprofessional behaviour to the bankers. Usually, those documents include the business and personal tax returns of last 2-3 years, and business and personal financial projections of 12-24 months to present to the lender/bankers
1. What is the likelihood of approval?
Applying for a bank loan and not getting it will affect your business credibility for future applications. Whenever you feel like applying for a small business loan from the bank, make sure you know all the requirements for the approval of your loan application seek help and assistance from an expert in the bank to know all the minimum requirements, which are compulsory for applying for the bank loan and due to shortfall on any requirement your loan application will get rejected on the spot.
2. What are the loan's specifics?
While applying for a small business loan, you should ask about the specifications, standard terms and conditions of the loan as it is important to know that because you should know more about the specifications other than just the ratio of the interest rate on the loan. You can also learn about the full repayment demand dates from the lender. As some of the companies prohibits early payments from the borrowers on their loans while some are willing to work on the term of prepayment penalties and some are not willing to negotiate. Instead of knowing these terms and conditions after taking the loan at the time of prepayments or repayments which will create issues be careful in this matter as well to avoid any severe legal action against your business.3. Are there any application fees?
Some of the applications forms require some fees or charges to apply for the loan. You should know that if the loan you have applied for will get rejected, in that case whether the fee for the application form to request for a small business loan is refundable or non- refundable. As most of the time, the fees or charges on applications form are non-refundable but it took people by mistake thinking that they will get the application fees back in case of not approval of the loan by the lender.
4. How much can I borrow based on the asset I'm using for collateral?
Sometimes business owners are left with no other option but to apply loan for your business by pledging your assets as collateral. Business owners should be aware of the fact that the amount of bank loan they are applying on the bases of assets as collateral should be 30-40% less than the value of assets as banks always value your assets below than the market value of your assets or the value you think they posses. Banks often lend you money up to 60-70% of the value of your assets set by the banks.
5. Do I have an adequate cash flow to repay the loan?
Before approving your business loan, bankers will demand you to provide them with the financial projection of your business. Bankers would go through it in detail to find out whether your cash flow is disrupted or not, and to find a loop hole in your debt repayments to reject your loan. Do not forget to include the debt repayments plan in those financial projections. The approval of your bank loan merely relies on these cash flows projection of your business, if they will find any error in your debt repayment history; it is more likely of them to reject your loan request. Here is a link to information that would help you out with short-term business loan.
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6. Will the money help my business grow?
The purpose of applying for a bank loan should be very clear and related to the better future of your business. If you are borrowing loan to cover your operating expenses or payrolls etc., then the chances of repayment of debt will get narrow and so does the growth of the business. You should try to invest the borrowed money on those parts of the business through which you
will generate more revenue which will be beneficial in both ways for the debt repayment and business growth and better future of your business.7. Do I have all the documentation I need to apply for the loan?
You should have the knowledge related to the documents that mandatory to submit along with the application form while applying for the small business loan in the bank. If you go to the bank without these documents, it will reflect your non-serious and unprofessional behaviour to the bankers. Usually, those documents include the business and personal tax returns of last 2-3 years, and business and personal financial projections of 12-24 months to present to the lender/bankers
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Any facts, figures or references stated here are made by the author & don't reflect the endorsement of iU at all times unless otherwise drafted by official staff at iU. This article was first published here on 30th March 2018.
