Applying for a business loan is somehow different from applying for a personal loan. Personal loans usually require basic information about your income, debts, and verification of who you are. On the other hand, business loans require more detailed information. This is very typical since the amount of money that you need for your business outweighs the amount of money that you need for personal purposes.
In order to get your business loan approved, you need to be prepared to answer these five questions.
Why do you need a business loan?
The first step to planning for your business loan is knowing why you need one in the first place. Once you gather all the information needed, you will be able to determine the most effective type of loan that you need. Finance strategists from https://www.loanry.com/, explain that business financing loans can differ from one type of business to the other. That is why banks usually ask for the purpose of your business loan request. They gather all the reasons why you need a business loan to determine whether you qualify for one. In addition, it helps the bank determine how much they can lend you to fund your business.
What type of collateral do you have?
Banks easily lend money to startup businesses, since the federal Small Business Administration (SBA) guarantees covering a portion of your startup business cost. Thus, the risk on the lender is reduced. In case your business is not a startup and has been running for several months or years, the bank may ask you for collateral to guarantee that you can pay them back the loan.
Moreover, the bank analyzes your assets in order to reduce the risks of lending you money. Collateral is very essential to your business loan, since you will be pledging your personal assets to get your loan approved. Thus, you need to make sure that you have collateral that the bank can accept for your loan. In most cases, any private property can qualify as collateral.
What will you fund with this loan?
Requesting a bank loan for your business can be used for various cases. The bank will definitely need to know more details about your funding plan. In other words, the bank will want to know what you plan to spend the money on, or how it will help your business. You can spend the loan on expanding your operating system, updating your outdated equipment, launching a new marketing plan, or anything else that would require funds.
When the bank asks you such a question, they do so to have a follow up on your funding plan, and thus determine if they can approve your loan. Most importantly, the bank will want to know if you have an efficient profitability plan that guarantees of paying back the loan.
How much will you profit from your business?
You know your business is successful from the amount of profit that you gain, especially if you have your company established in the marketplace. On the contrary, if your profit margin is decreasing, then the success of your business is on the line. To cut it short, banks focus on studying your business plan to determine whether it is profitable or not. They mainly look out for your business revenue, which shows the bank whether you will be able to repay the loan or not. In this case, make sure that your business revenue meets the bank’s expectations.
Why are you choosing this bank?
This question does not necessarily determine your credibility or trustworthiness as much as it earns you earn extra points. The bank may ask you why you chose them out of all the other banks that may lend you the money to rate your loyalty. When the bank confirms your loyalty, this makes you better qualified to get your loan, seeing as loyal customers are a priority to the institution. Not to mention that if you have a previous loan or account history with this bank, this also makes you better qualified for the loan, especially if you have a compelling credit score. Try to prove your loyalty to the bank for higher chances of getting your loan approved.
To get your business loan approved, your bank needs to make sure that you are well-qualified for it. Moreover, if you provide the bank with detailed and verified information about your business, your chances of getting a loan will be higher. Prepare yourself with answers to the previous questions, and make sure that you’re confident when answering any further inquiries.