Questions to ask before applying for a bank loan

The majority of businesses, whether they are only just starting up or have been in the market for a number of years, will need a bank loan at one time or another. However, actually applying for a bank loan requires more than just filling out the paperwork.

Here are some questions business owners should ask themselves before beginning their bank loan application:

Is it probable that I will qualify for the loan?
If you believe that your business won’t qualify for a bank loan, then you will only hurt your credit rating if you apply for a loan you won’t get. Being rejected for a loan can also make it more difficult for a business to borrow in the future.

Will the loan help the business grow?
Instead of using the loan for aspects like routine operating expenses that don’t generate much revenue, owners should consider putting the borrowed money into parts of the business that will generate more revenue and help reduce future borrowing needs.

Are my personal finances in order?
Until a business reaches a substantial size, many banks will rely heavily on the owner’s personal financial statements and credit scores to determine the business’s creditworthiness. This may involve bankers looking at an owner’s personal information like student loans, personal credit card debt and mortgage payments.

Do I have adequate documentation for the loan?
When applying for a business loan, you will need a lot of documentation. Requesting a loan when an owner is not fully prepared makes the business look unprofessional.

Do I have adequate cash flow to repay the loan?
When a business owner applies for a loan, their banker will require the owner’s estimated financial projections for the business. It is important for owners to include their debt repayment plan in those projections.

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