6 Questions to Ask Before Applying for Another Business Loan
In this post, we’ve compiled a list of six questions to ask yourself and your lender before applying for a new business loan.
What to Consider Prior to Applying for Another Business Loan:
1. Can I pay off the remaining balance of my matured loan and still receive additional financing?
It’s entirely possible that your financing provider won’t offer you another business loan if you don’t finish paying off your remaining balance first. If you haven’t finished repaying your balance, consider focusing on this before you apply for your next loan. Of course, some cash needs are immediate, so if you need to apply prior to repaying your existing loan, discuss this with your lender.
2. If I extend the loan, will I be able to realistically pay it off?
If you still have an unpaid balance to pay, your financing provider may ask if you’ve considered extending the loan. However, this may not be in your best interest if you know you can’t pay off the loan regardless of time. Determine if you can responsibly handle this before making a final decision.
3. Are the new terms comparable to my current loan?
If you’ve paid your loan off on-time, your new loan’s terms should be competitive and comparable to your current offer. If you’ve established a good relationship with your lender, you may be able to negotiate better terms for your new loan.
4. Can I send in my financials early to renew the loan before it matures?
A financing provider will likely appreciate it if you do this – it shows that you’re organized, ahead of schedule, and ready to discuss the terms. As Chron points out, if your lender issues another loan before your existing loan expires, you could get into an evergreen loan situation. This means you wouldn’t be without a business loan indefinitely.
5. What can I do to strengthen my application?
It’s best to discuss this with your lender a few months before your loan matures. Make your intention to renew known, so that you can discuss preliminary details.
Entrepreneur.com recommends you show that any new cash influx wouldn’t be used to pay off other debts, only necessary business operations. If your loan is based on assets, receivables, or inventory, ensure everything is organized and up-to-date.
6. Does my business still need that much money?
Maybe it’s been a while since you reviewed your finances, or perhaps you have an accountant or business partner that handles financial matters more than you do. Regardless, whenever you’re making decisions concerning your business’s finances, you should keep an eye on expenses, revenue, debt repayment, and other factors.
You might find that expenses were optimized a few months ago, and you’re not spending the same amount of money your financials were showing a year ago. In this case, you might need another loan just yet.
Your Business’s Bottom Line
By reaching out to your bank or lender with organized financials ahead of time, you’re placing yourself in a highly favorable position for a renewal. If your relationship with your financing provider is going well due to consistent, on-time payments, receiving another loan can be valuable to your business’s future.
If you’re unsure of if you need more financing, then make sure you talk to your accountant about the right path to take. Receiving another business loan doesn’t have to be a difficult or lengthy process, and it can be beneficial, especially if your business needs a cash influx.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.