Questions to ask before applying for a bank loan

Financing your SME isn't always a straightforward task especially when you are trying to grow your business operations.

It's not uncommon for owners to seek a loan in order to fund the resources necessary for their business to exceed expectations. Below are some tips for SMEs, from the team at Entrepreneur.com.

Do I have a healthy business credit score?

Many people are aware of their personal finance score but few SME owners ever bother to familiarise themselves with their business score.

In order to understand how likely your loan application is to be approved you need to first ensure that your credit score doesn't have any outstanding debts present. Remember, your lender will check your credit score and it could essentially be the difference between getting a yes or no. With that in mind, make sure you always check your own credit score before submitting an application to understand how well you are positioned to receive an approval.

Are my personal finances in order?

It's important to always remember that the bank's job is to determine the risk associated with providing you a loan. For small businesses this usually involves examining your personal finances to determine how your personal debt can affect repayments. Understanding your personal credit can help indicate how likely your loan is to be approved.

Can I provide the necessary documentation?

The loan application process will more than likely be time consuming as lending institutions require a range of documentation to help make their final decision.

By preparing yourself with the documentation from the very beginning you not only exhibit a degree of professionalism, you also remove the chance of your documentation becoming out of date.

Will the loan have a prepayment penalty?

Prepayment penalties aren't as common in today's market, but it's a good idea to understand the terms and conditions of your loan before you commit.If you make an investment on the back of your loan and your business starts to exceed growth expectations, you may decide that you want to repay your loan early.

A prepayment penalty will increase costs for short term repayments, but can offer valuable conditions for larger lines of credit.

Who pays my loan if I pass away?

This is a question majority of SME owners won't even think to ask, but in the event of an untimely death your business loan could have an impact on your family.

Identify how your lending institution operates in the event of a death and then determine how you can protect your family should something happen. The last thing you want is to leave your loved ones in debt.

Denied a loan and not sure why? We have some information to help you prepare a successful financial presentation for your lender!

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