Collecting a loan for a business at one point or the other involves more than filling forms and taking the funds. It requires you to analyze your business cash flow, the terms and conditions involved, the collateral, how much you really need and how fast you can repay the loan.
KEY QUESTIONS YOU SHOULD ASK BEFORE STARTING AN APPLICATION:
1 How good is my business credit score?
2 Are my personal finances in order?
3 Do I have all the documentation I need to apply for the loan?
4 Does the loan have a prepayment penalty?
5 If I die, how will the loan be repaid?
IN DETAILS
1 HOW GOOD IS MY BUSINESS CREDIT SCORE?
Knowing only your personal credit score is not enough, you should be able to know your business credit score before considering taking a loan. As with personal credit, you can find your business credit score through Experian, Transunion or Equifax. If the score is not as high as it should be, it might be because of some outstanding liens against your business.
To be able to get the accurate business score, ensure to monitor the operations of your vendors, ensure that they give accurate report of what they make daily.
2 ARE MY PERSONAL FINANCES IN ORDER?
Set your financial records straight. Your personal financial records may be required at some point before you’re allowed to take the loan. If your business is a small business, the lending institution would be so much interested in your personal credit score, until your business grows to a certain level.
If your collateral is not enough, or your debt profile is on the high side, you may be required to provide a co-signer to be able to obtain the loan.
3 DO I HAVE ALL THE DOCUMENTATION I NEED TO APPLY FOR THE LOAN?
Another important question is the documentation required for the loan. As expected, you should first find out from the lending institution the kind of document you are required to provide before considering to take the loan. After findings are done, you should get the document prepared.
If you go to the lending institution not fully prepared, not only does it make you resemble an unprofessional business leader, your document at the end of the day might be considered outdated.
4 DOES THE LOAN HAVE A PREPAYMENT PENALTY?
This is so important. Some lending institutions have some fixed time of payment and charge the loan takers for prepayment. You need to find out and possibly negotiate based on how it would favour you, provided there is a window for such negotiations.
When you have a good excess cash and a paid-off or paid-down line of credit, the lending institution may get excited and impressed that you are responsible with debt and can handle an increase in your total credit.
5 IF I DIE, HOW WILL THE LOAN BE REPAID?
This may actually sound funny, but it is not. Some business leaders take loans without considering whether the lending institution would do this or that when they are no more without repayment of the loan. You should find out the terms and condition involved in such cases.
However, your next of kin should be involved in the deal process a possible fellow to take up with the business and make the repayment. Do not think that the lending institution does not have a choice if you die, they do, and their choice would likely be to take over the collateral presented during collection of the loan.