June 28, 2021

10 Questions to Ask Your Small Business Loan Lender

If you’re a small business owner seeking financing and aren't sure what questions to ask, rest assured that other entrepreneurs struggle with this too. In this blog post, we’ll list 10 questions that you should ask your business loan lender. Then, we'll explain why it's crucial to get the answers to these questions to successfully navigate the small business lending process.

The 10 Questions to Ask Your Business Loan Lender Prior to Taking Out a Loan:

1. What's needed for the business line of credit or loan application

Your lender likely has a document or webpage they can point you to so that you know what you need for your loan application. Still, even if you already have the document, ask your small business financing lender this question. When prompted, the lender may provide additional insight into their application process. For instance, they may have additional prerequisites they use to evaluate loan applicants, such as a year in business requirement or how much you make in monthly sales.

2. How long does it take to get approved?

The duration of time between loan application submission to loan application approval varies considerably from lender to lender. It varies even more if you’re looking at different types of loan products. For example, approval on a business loan from a traditional bank can take one month or more. Approval on merchant cash advances, on the other hand, could be granted in a week or less. Make sure you know the typical approval timelines with each loan you consider and lender you interview.

3. Are there any restrictions on fund usage?

It’s important to know what (if any) restrictions apply to what you can use your loan amount for. The last thing you want is to sign a loan agreement and find out that you can’t use the funds in the way you planned to. For example, the SBA has different restrictions on use of funds for their 7(a) loan program than they do for their 504 loan program. Non-SBA lenders will also have their own unique fund usage restriction policies.

4. How long does it take for funds to be released?

When it comes to business financing—and small business in general—timing is everything. Early in the process, your lender may give you a range rather than a precise timeline. Try to get as specific a timeline as possible so you can plan properly. As you move along the loan process, ask this question again since the lender may provide a more precise timeline.

5. Is prepayment allowed?

Whether you expect to pay your small business loan off early or not, it’s good to know what your options are. Plus, certain lenders charge expensive fees if you pay off your loan early. So make sure you ask 1) whether prepayment is allowed and 2) what the fees will be if you prepay. Also, keep in mind that some lenders offer discounts for early payment.

6. How does the repayment process work?

The details of your loan repayment process have such a significant impact on cash flow that you literally can’t afford not to know how repayment terms works. If your payments increase and you’re not prepared, you may be unable to make your loan payment. If that happens, your credit score will take a major hit and your loan may become delinquent.

7. How does your renewal process work? 

In the ideal situation, you’ll find a business financing lender that you want to work with again. Or, maybe you’ll need to borrow additional money for projects later on. Depending on the online lender, you can renew your business loan to access additional capital before (or after) your loan balance hits zero. However, different lenders have different policies, so this is an important question to ask.

8. Do you lend to other companies in my industry?

While you’re right to focus on logistics like loan terms, conditions, and payment schedules, don’t ignore your lender’s industry experience. Ask the business lender if they’ve worked with companies in your industry and how it went. Typically, you’ll have a better experience working with a lender that understands the intricacies of your industry.

9. Will my repayments be reported to the major credit bureaus?

Most business lenders do report your payments to the major credit bureaus. Still, you should ask your business lender to be safe. Their reporting practice doesn’t change the cost of your loan, but it affects your ability to build credit. Assuming all else is equal, a loan on which your repayments are reported to credit bureaus is preferred.

10. When is my first payment due?

The timing of your first loan payment can vary considerably from loan to loan. If you have a monthly payment schedule, you’ll make your payments on the same day each month. On a daily repayment schedule, though, your first payment is typically on the first business day after you’ve received loan funds. On a similar note, if you’re taking out an interest-only loan, make sure you know when your first principal payment is. Your first principal payment comes after your interest-only period ends and the payment will be much larger. New call-to-action

Conclusion: To Find the Best Small Business Lender for You, Don’t Stop at Ten Questions!

The fact is the best questions to ask your business lender also depend on your unique situation. Go further and think carefully about your situation and what potential complications you might need to clear up. For example, if you have bad credit, you should be upfront about that with your lender and ask them how they can help. Even if it means your online application gets rejected, you’ll be one step closer to finding the right fit.