"Do I Need a Business Loan?": Five Questions To Ask When Applying

business loan questions

No matter what your business does or how you manage your finances, chances are there will come a time when you consider getting a small business loan to help out.

There’s plenty of reasons for this: expanding into a new location, keeping up with new inventory, or even just getting some quick capital to sustain your business through a temporary setback. Whatever your financing needs, however, there are always going to be a few things to consider during the application process to help you best understand what you need the money for, how you can get it, and what effect this might have on the finances of your business in both the short and long term. If you’ve been looking into small business funding, here are five questions to ask yourself before you apply — or even during the application process.

What do I need this financing for?

This might sound a little obvious, but these needs are always worth considering. A lot of business owners are too quick to identify financial shortfalls as a need for a loan, or conversely they’re too quick to try to fund a big project themselves when it could cause a lot of short-term cash flow problems for other areas of the business that will need the money more quickly, like inventory and payroll.

Before deciding if you need a loan, review your current financial standings including outstanding debts and projected income, and then make sure to get solid estimates of how much you might need for whatever you’re trying to finance. Get quotes from vendors or contractors, or if you’re just looking for working capital to help cover expenses above and beyond your typical revenue, make sure you calculate how much you’ll need and how much you can afford to pay back.

How is my credit looking?

Most small business lenders will look into both your business and personal credit. We’ve talked in the past about keeping business and personal finances separate, and this is a big part of why — strong business credit will give you more leverage when trying to get business funding and may open the door for opportunities you wouldn’t have had with a lower credit score and/or too much of your personal finances wrapped up in your business.

Will I be able to afford the payments?

As anyone with a mortgage can tell you, the worst part of getting a loan is probably paying it back. Business loans are no different, and it’s crucial to figure out if your business has enough income and revenue to put towards whatever regular payment plan the loan requires. It isn’t enough to just know you have enough money to pay it back — you need to make sure that the money coming out won’t hamper your business in other regards.

Can I provide a solid business plan?

Having a strong business plan is something of a prerequisite for success in any field or industry, but it can also factor into any attempt to get extra financing. A lot of lenders will request to see a business plan as part of the lending process, and even if most platform lenders don’t need a formal “business plan” they may still request to see documents detailing the viability and success of your business to determine how much funding you can qualify for and what you can reasonably payback. Either way, you’re going to want to make sure you can provide this information.

Do I understand what kind of loan I need?

Finally, if you’ve figured out all the steps you need to take before you can apply for funding, the last thing is to figure out exactly what kind of financing can best fit your business. Working capital is a good choice for businesses that need some extra cash in the short-term and have a steady enough revenue stream to pay it back, but it might not be sufficient for major projects like office renovations or business expansion which will require a bigger amount of capital.

Once you’ve got the answers to these five questions, you’ll be a lot closer to finding a business loan that fits your needs. If you’re curious to see how Credibly can fit your business financing needs, pre-qualify today and get the process started.