July 26, 2021
6 Questions to Ask Before Applying for Another Business Loan
However, if you're utilized your small business loan and are nearing the end of your business loan’s term, you'll be faced with some important decisions. Depending on your cash flow needs, you may want to consider applying for another business loan through your current lender. Most small business lenders are happy to work with existing customers again, especially if you’ve responsibly repaid your term loan and made payments on-time. Still, before you apply for another loan, you should take time to evaluate your financing needs. In this blog post, we’ve compiled a list of six questions to ask yourself and your online lender before applying for a new business loan. After reading this post, you should be able to determine if you should apply for a business loan once your existing obligation is complete.
How to Apply for a Second Business Loan:
1. Can I pay off the remaining balance of my matured loan and still receive additional business funding?It’s entirely possible that your financing provider won’t offer you a renewal business loan if you don’t finish paying off your remaining balance first. Usually, it's because they want to ensure that you'll fulfill your obligations before taking on another loan balance. 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 small business lender. In some cases, they may be able to provide you with another loan prior to
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, especially if 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 term?If you’ve paid your loan off on-time, your new loan’s terms should be competitive and comparable to your current offer. In addition, 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 financial information 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 business loan application?It’s best to discuss your application 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 require additional funding?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 factors such as:
- Debt repayment
Conclusion: Consider Your Small Business’s Bottom LineBy reaching out to your bank or lender with organized financial information 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 require more business financing, then you should take time to discuss your finances with your accountant or financial advisor. Most likely, they can help you assess your business's financial situation and identify any potential cash flow needs. That way, you can tell your business lender how much money you need, what it will be used for, and how you plan to use it. Ultimately, receiving another business loan doesn’t have to be a difficult or lengthy process. In fact, you can use your existing relationship with your lender to your advantage to get another quick cash influx for your business.
Editor’s Note: This post was updated for accuracy and comprehensiveness in July 2021.