Qualifying for a small business loan can be a challenge for a business owner who isn’t prepared for a few very basic yet mandatory questions. Typically, the questions are asked by a loan officer to confirm certain things before they proceed to grant business loans.
Today, a successful business loan application depends not so much on the kind of relationship that you have with your lender but more on what the data tells the lender about your potential business.
You should be prepared to answer five basic questions if you believe that you qualify for a business loan.
Here are the questions:
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When Do You Need the Money?
The first question is how quickly you will need the finances.
If you are ready to get a business loan now, rather than at some other point of time in the future, the potential lender is more likely to take you and your application seriously.
Tell Your Annual Cash Flow
The second question revolves around your annual revenue and cash flow. While it might come off as if two questions are involved rather than one, you might already know that both point towards the same thing.
There are two reasons that your lender might ask you these questions. The first reason is to determine whether or not you have the financial means to support periodic payments, which are also crucial for investment property loans.
The other reason is that they will use this information to assess how much loan they can approve if they proceed to offer you a loan. As you might have already understood, a loan amount is usually based on a percentage of your annual revenues.
What is Your Industry?
Another question of interest to your potential loan provider will be the type of industry that you are in. Every money lender has something known as a restricted industry list. They consider potential industries too risky from a credit perspective to engage with.
Fortunately, what some lenders might consider too risky, other lenders might prefer to work with. For instance, traditional money lenders often consider restaurants as high-risk businesses. But, other lenders prefer working with restaurants.
They understand the industry better and know how to better accommodate the potential risk.
What is Your Credit Score?
Another question that the loan officer will ask you is about your personal credit score. Your personal credit score will likely always be part of the loan discussion anytime you will apply for a business loan.
The underlying reason is that most lenders have thresholds that they need to see before considering a loan application. For instance, bankers prefer seeing a credit score in the 700s. However, it is important to mention here that a good credit score doesn’t necessarily guarantee that you will get a business loan.
But, it will give you more options to consider that a poor credit score won’t.
ID Verification
Lastly, you will have to identify yourself and allow access to your business checking data. This might not necessarily be a question, but ID verification is mandatory.