Whenever you have to make a major decision in your life, you conduct thorough research and oversee all the potential possibilities. Applying for a small business loan also requires meticulous studying so that you have adequate knowledge to choose the right option. If you need extra capital for your small business, you can knock at the door of the alternative or alternative lender, and the funds are yours!
As you know that you will find a lender at every corner of the street and if you surf the internet, you will come across multiple online lenders. Multiple lenders mean you have multiple opportunities to fund your small business, but before you do that you need to have a rough idea regarding the total loan amount you need for your business, a complete understanding of your credit profile and most importantly when do you need the funds. After you have checked in and assessed your financial credibility, all it takes is three simple steps to get a loan, you will fill out an application, provide all the necessary information, and the lender will review your application, and once you the lender makes the decision, the funds will be transformed into your account. But before you pop up the celebratory bottle, remember to ask the following questions from your potential lender. It is important to ask these questions to avoid future confusion.
- Does this particular company offer a small business loan to my company?
Not all of the lending companies offer to lend loans to every small business. Some businesses prefer to offer a Merchant Cash Advance to retail business managers. For example, if you are running a food truck, don’t waste time by going to the lender that specializes in offering a Merchant Cash Advance because this won’t be an ideal funding option for your small business.
Before you approach the lender and ask them to offer a working capital loan so that you can stock up on inventory or equipment financing to repair and broken equipment and they tell you they don’t offer services to food businesses, it is advised to do prior research. Be confident in your business plan and ask about everything that is bothering you. The lenders won’t snub you, answering your question is the part of their training.
- What are the interest rate, factor fee, and APR on your loan?
At times, the borrower fails to comprehend the total fee of the loan, and when it is time to make the final payments, they are shocked at the total payment amount. Most of the lenders have mentioned the interest rate on a small business loan. An interest rate is in the form of the percentage; it only represents the percentage of the interest that you have to pay on each payment.
On the other hand, the APR (Annual Percentage Rate) shows all the additional fees, such as obligation fee, early payment fee, late payment fee, and a few more.
Moreover, cash advances have factor rates or fees instead of the interest rate. A factoring fee ranges from 1.1 to 1.5, and it is to be multiplied by the total loan amount lent to you by the lender. Understand the difference between an interest rate and the factoring fee since you have to make timely payments depending on the total amount.
- How long do I have to wait before I get access to funds?
As there isn’t any definitive timeline, so you have to check in with your lender. Some lenders take a couple of days to approve a loan while in some scenarios, you have to sit and wait for months. If you are applying for a small business with a traditional lender, then you have to wait longer. If you need funds to stock up for the coming season, you have to apply for a business loan six months earlier. On the hand, if you are applying for a small business loan from an alternative lender, you can get instant access to the funds. So, choose the lender carefully after considering the time when you need the loan.
- Will you report my credit score to the credit bureaus?
It goes without saying; you can get a loan with better terms if you have a ‘good’ credit score. Apart from covering the financial glitches, a business manager with a ‘poor’ credit score applies for small business loans so that the lender can share his or her credit score report with the credit bureaus. But not every lender gives the report to the authorities.
When you are finalizing the total cost of the loan, make sure you put this question in front of the lender. If your primary goal is to improve your credit score, it is advised to find the lender that will help you secure a business loan with better and flexible terms in the future.
- When am I supposed to make the first payment?
A borrower is obligated to make the payment when it is due. A small business loan payment is on a weekly, daily, and monthly basis. Technically, if you got access to the funds on the 1st of the month, you would have to make the payment on the 1st of the next month. Still, it is recommended to ask the lender about the payment schedule. For example, the payment term of a Merchant Cash Advance is different from a term loan. The lender takes a small percentage of your future credit card sales, but in the case of the term loan, the borrower clears off the debt while making weekly or monthly payments.
- Is this particular funding option best for my small business?
The lender asks for a business plan so that the lender can understand the niche of your business along with the reason behind the small business loan. If this is your first time applying for a business loan, then you must know that financial advisors and the account managers are there to help you choose the most suitable business loan. If you need to cover the repair cost of the broken equipment, then the Equipment Financing would be the ideal financing for you. So, if a lender is recommending applying for a business line of credit to cover the repairing cost, then it is time for you to look for the new lender.
- Do I have to pay an extra fee if I end up making the payments a bit earlier?
Every lender has a different repayment policy! Some lenders will let get of all the pending payments if you have cleared all the pending debt. On the other hand, some lenders will ask you to pay for the early repayment fee. So, don’t be extra efficient and pay all the payments before the deadline, without consulting with the lender.
The list of essential questions to ask your lender doesn’t end here! Whatever discrepancy you have, you should clear with your lender. Because once you signed the document, there is no turning back! To summarize, make sure you agree with the total loan amount, including the interest rate and APR. You are comfortable with the loan payments because defaulting the payments can lead to adverse consequences. So make sure you know the entire mechanics of the small business loans before entering into the lending business.
Lastly, if you have picked a small business loan, head over to our website, and apply for the one! For more updates and tips and tricks, follow us on Facebook (@Onlinecheck) and Twitter (@Onliencheck). If you have any question, feel free to call us on our toll-free number at (833) 827-4412, our loyal and keen financial advisor will answer your every question and guide you throughout the way.