What Questions Should I Ask My Business Loan Officer?
Applying for a business loan can be stressful for even the most prepared borrower, so it’s important to have clear and open communication and ask the right questions of your loan officer. Having a relationship with a human being working for your future lender can make the loan process more simple, more clear, and less of a mystery.
Many business owners begin their relationship with a loan officer thinking they know exactly how the process is going work. “When a client comes into the door, they might have an idea,” says Tommy Blinder, Funding Director for Biz2Credit. “But it’s important to be open minded.”
Your loan officer, relationship manager, funding specialist — whatever that person’s title — will use their knowledge of the lending process to make sure you’re getting the right money at the right price at the right reasons. And to help them understand your company and your needs, you need to make sure you’re asking the right questions before, during, and after the business loan application process.
Before you even start looking at your small business financing options, there are a few questions you need to make sure you’re perfectly clear on. The answers will set you up for success with your potential lender all the way through the application process.
1. What types of financing options does the lender offer?
One of the biggest reasons Blinder suggests that borrowers be open-minded is that many lenders have a wide variety of loan programs and funding products.
Once you understand your need — that is, why exactly you need the financing — an online resource like Biz2Credit can help you choose from a range of lending options. Biz2Credit, for examples, offers and connects borrowers to lenders offering equipment financing, merchant cash advances, lines of credit, business credit cards, federally-backed Small Business Administration (SBA) loans, and more.
When your relationship manager understands what your company needs, they can help hone your choices to the best fit.
2. Am I asking for the right sized small business loan?
More isn’t always better. When it comes to business loans, you want to make sure you’re borrowing an amount large enough to pay for your company’s needs but also not so much money that you’re unable to afford payments. Missing payments causes harm to your credit scores, which can lead to worse loan terms on any future financing.
Your lending officer will be familiar with your business, your goals, and your needs. They’ll help you choose the perfect loan size to keep moving forward without causing major cash flow issues (or dings to your credit report).
You should also ask about repayment. “[Customers] need to make sure they can afford the type of financing being given to them,” says Blinder. That means knowing the total cost of the financing over its whole life. What is the functional interest rate; or cost of capital; does the financing include an origination fee? Are there any prepayment penalties? You’ll also need to think about whether it’s best for your company to be making payments every month, every week, or even every day.
The right financing shouldn’t inhibit your cash flow in a way that makes it tough to make ends meet. Use a resource like the Biz2Credit Small Business Loan Calculator to determine your monthly payments.
During the application process, your job is to be patient. But there are still a few questions you can ask to make sure that your lending officer has all the information needed to process your application.
3. Does the lender need any more information?
There’s always a chance that your loan officer might need some extra financial statements, more information about your personal credit, or other details, even after you’ve submitted the application.
It’s incredibly important to, as Blinder says, “[be] honest about collections, liens, judgments, anything that could potentially affect your financing.” He adds that some borrowers may think it best to leave out some of the more negative moments of their financial lives, but lenders will always find out. Dishonesty on a loan application will obviously result in being denied a loan, but it can also result in serious legal consequences.
“We’ll be able to structure a deal around the challenges you’ve experienced in the past,” he says. You just need to be honest and open.
If you were approved for a financing, congratulations! Even if that’s the case, you may still have a few outstanding questions.
If you weren’t approved, that doesn’t mean this is the end of the road. A discussion with your lending officer can lead you on the right track to getting the business loan your company needs.
4. Where can I improve my loan application, if I was denied funding?
Your loan officer will be able to tell you, in detail, where and why your business loan application was denied. You should ask lots of questions if this is the case. Knowing why one lender turned you down for one loan can help you learn how you can make sure you’re approved for the next loan.
Was it because of a sub-par business credit score? Was it because your business plan wasn’t up to snuff? If you find out why, exactly, you were denied, you’ll have a much easier time pinpointing where you can improve your financial standing in order to get that loan the next time.
5. What else could I apply for?
If you’re not approved for the loan you wanted at first, ask your relationship manager to recommend alternative lending options. If you weren’t approved for an equipment loan to buy cardio machines for your personal training studio, maybe you could be approved for a line of credit. If you weren’t approved for an SBA loan to help stock up for your busy season, maybe you could get a merchant cash advance.
While you may end up paying a bit more for your capital, it’s important to remember that in many situations, you’ll pay much more in the long term by not getting that new capital at all.
Future Small Business Loans
Even as you’re receiving your initial business loan, it’s smart to already be thinking about the money your business is going to need in the future. Have the discussion with your relationship manager about what that might look like.
6. How quickly can I get additional funding if needed?
Most business owners will need another loan at some point. Sometimes it’s all part of the plan: Maybe your financial projections say that in two years, you’ll be able to move out of your current location and into a bigger building with better foot traffic. Or you’ll want to renovate your business to create a more appealing environment.
But you also may find yourself in an emergency. If you run a gastropub and your range top gives out, you can’t serve food. In anticipation of situations like these, ask your loan officer how quickly you can get more funding.
That’s one of the biggest benefits to working with a company like Biz2Credit. “The most important thing for us is speed,” Blinder says. “When business owners make a financial decision, they need capital instantly. They might not be able to wait two, three, four weeks, a month.”
And it can take that long for a traditional lender to decide on your application and dispense the money. With Biz2Credit, says Blinder, “In 24 hours they may get an approval from one of our lending partners. In 48 to 72 hours, we can get them funded.” Time is of the essence when it’s needed most.