Small business owners may need to obtain a small business loan from time to time. However, applying for a small business loan can be overwhelming for many. While online loan applications for business loans have made it easy to access capital that business owners may need, there are a lot of decisions to make when you’re considering applying for a business loan.
Here are 6 essential questions that every business owner should ask before applying for a small business loan using an online loan application:
1. Why do I need the loan?
By asking yourself why you need financing, you will be able to make the right decisions for your business. By analyzing your need for a business loan, you will be able to know exactly what type of loan you want to apply for. By determining your need, you can choose from the many different financing options lenders can offer.
The purpose of your online loan application will determine whether you should opt for a term loan or line of credit, and what payback options your cash flow can handle. The best way to determine this is to create a monthly cash-flow projection. Does your customer pay you in 60 days, but you have to pay your vendors in 15 days? If so, you might need extra money to tide you over.
2. What are the requirements of getting the loan?
Did you know that one out of every four online loan applications are not approved because the applicant failed to provide documents requested by the lender? Understanding a lender’s minimum requirements will help you narrow down the financing options that your business will likely qualify for. This will save you time and energy before you even get started filling out applications.
Before you begin filling out an online loan application for a business loan, make sure you are eligible to apply for it and can provide all of the documentations required. For example, if you are seeking a small business loan, we recommend that you provide at least six months of financial statements and projections for the next 12 months. For a full list of documentations required, please click here.
3. How much do I really need?
Before you approach a lender, make sure you have a good handle on how much cash you actually need. The best way to determine this is to create a monthly cash-flow projection. Does your customer pay you in 60 days, but you have to pay your vendors in 15 days? If so, you might need extra money to tide you over.
4. Will the lender run a personal credit check?
Part of every online loan application is an inquiry into your personal credit history. Some lenders, like Kingsmen Capital, can assess your creditworthiness by doing a “soft” pull, which does not show up on your credit profile and has no negative impact on your personal credit. So you can start the application process without impacting your personal credit score. However, some lenders do perform a “hard” pull on your personal credit and it’s recorded on your credit profile, which can be harmful to your personal credit and your ability to apply for financing elsewhere.
5. Will the money help my business grow?
If you’re borrowing $10,000 for payroll or other routine operating expenses, you’re not generating more revenue from the loan and could find yourself in the same spot three to six months from now. Instead, you should put borrowed dollars into the parts of the business that will generate more revenue over time and help reduce future borrowing needs
6. Do I have adequate cash flow to repay my loan?
Lenders will probably ask you to provide financial projections for the business. Make sure to include your debt repayment plan in those projections. Lenders are going to be looking for businesses that have some wiggle room, and you may need to show available cash flow that is three times greater than your debt payment requirements,