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Answer These 3 Questions Before You Apply For A Business Loan

Thinking of applying for a loan for your small business? That could be a wise decision. Sometimes a little extra capital is all you need to expand your business or overcome financial challenges. A loan from a bank or lender could give you the capital you need.

However, there are reasons why a small business loan may not be right for you. The payments could become a burden, and it could hurt your credit. If you borrow too much at too high of an interest rate, it could force you to scale back your business or even to go out of business. Then there's also the hurdle of getting approved by a lender. Many banks and other lenders are wary of loaning money to small businesses, so you'll need to show that you're capable of repaying the money. Below are a few questions to ask yourself to determine whether or not a business loan is the right path for you.

How will you use the money? This may be the most important question to ask. It's likely to be the first question that a potential lender asks when they review your loan application. Most lenders want to make loans that will help a business grow and be more successful. Maybe you'll use the loan to hire new employees or develop new products. Perhaps you'll use it to pay off tax debts or other liabilities. Whatever your goal, be specific in how you answer this question. The more defined your plans are, the better your chances of getting approved.

Can you make regular loan payments? This is another critical question. Your lender will want to know your current revenue, expenses, and other financial metrics. Specifically, they'll want to see that you have the cash flow, or will have the cash flow after the loan, to make regular payments. For example, they may want to know your profit margin and how that will change after you put the loan money to use. If you don't have a sizable margin, they may feel uncomfortable approving the loan. Make sure you can demonstrate where the payments will come from.

Can you verify all your information? Your lender likely won't just take your word for it that you can repay the money. They'll want to see financial documents verifying your income, expenses, and more. Tax documents are often helpful, as are income statements and balance sheets. You may want to work with an accountant to develop these documents.

Also, consider developing a formal plan for how you will use the loan. Show how you will use the money to grow your business and expand your market share or how it will help you improve cash flow and profits. Create a written plan or presentation. Those documents could help your lender give you a faster approval.

Ready to expand your business? Talk to a bank or other small business lender today to start the process.


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