Taking out a loan is a major financial decision. Finding the right partner–as well as the right loan–is critical for ensuring that you’re getting everything you need out of a financial solution. Especially when considering a loan for your business, there are several important questions that you should ask when vetting a potential lender. Read on to see what we recommend starting with, and be sure to download our checklist infographic, so you can reference these questions whenever you need them.
Not all loan products are created equal. Understanding fundamental components, as well as smaller nuances of the financial solution you’re being offered, can help you evaluate the quality of the loan. Here are some questions to ask:
- Do you offer fixed rate loans?
This will help you determine if your interest rate is going to stay consistent throughout the life of your loan, or if that rate is going to fluctuate based on market conditions.
- Is personal collateral required?
Some lenders require that you secure your business loan with personal collateral. Examining the details this requirement can help you calculate the real impact of your loan.
- What is your maximum loan term?
Longer payment terms typically mean that your monthly payment will be lower and more manageable.
Understanding how a lender operates can be just as important as the product they offer. Digging into expectations around timelines, deliverables, and expertise can decrease chances of unexpected surprises once you’re into the loan process. Here’s what to check for:
- How will applying for this loan affect my credit?
Many lenders will do a hard pull on your personal credit when you’re applying for business financing, which can lower your credit score and stay on your credit report for up to two years.
- What factors do you consider in a loan application?
Lenders often use a standard equation based on static and narrow criteria (think FICO score and income alone) when determining your eligibility. Others may create a more holistic profile for you, based on specifics about your profession, earning potential, and more, which are then weighted according to historical data.
- How quickly will you make an approval decision regarding my application?
Establishing a lender’s approval timeline can help you set expectations on whether your loan process is going to take days, weeks, or even months.
- How quickly can I get my funds if approved?
Some lenders can take weeks to deposit funds into your account after you’ve been approved, while others can do so in a few days.
- What experience do you have working with financial profiles like mine?
If lenders have expertise lending to a specific sector of the workforce or type of customer whose profile matches yours, your process may be streamlined, and they may be better able to serve your unique needs.
Finding a financial partner whose product and processes match your expectations is essential. Knowing what questions to ask to determine that is even more important. Taking the time to evaluate your wants, needs, and deal breakers before vetting these lenders will help you evaluate how their answers to these questions align with your values and priorities for your business. Use these questions to start the conversation, and begin your funding process with confidence.