Asking your business loan broker these questions may help to expedite the loan approval process. Photo credit: Pexels
Short on time, energy and patience after being rejected countless times when applying for a business loan?
If so, it may be time to put your case in the hands of an experienced business loan broker.
A savvy broker can make your loan application much easier (and probably less traumatic), as he or she can dispense tips and advice, and has a good network of contacts.
But before you hire a business loan broker, here are five questions you should get ready to ask him or her:
Not all businesses are created the same; and the same goes for a loan.
Knowing the jargon is a great start, but understanding which loan works best for your needs (and why) is crucial.
How long your company has been operating, what it requires in the next stage of its expansion, its liabilities, and profit and loss, all play a part in determining the loan you should apply for.
For short-term cashflow needs such as payroll, a business credit line may work. But to shorten the arduous waiting period between the signing of a new business deal and awaiting payment from a buyer, invoice financing or invoice factoring may be good options for growing your company.
To improve your chances of applying for a loan that is most appropriate for your business needs at a specific point in time, be thorough when briefing the broker.
Tell him or her about your cashflow issues, business needs and challenges, and company performance so that he or she can offer the most suitable loan recommendations.
Every financial institution (FI) – be it a bank, private lender, peer-to-peer lender or even family office – has its own set of criteria and considerations before they decide to grant an SME a loan.
Unfortunately, such criteria is often not disclosed explicitly by these FIs for security and competitive reasons.
But in general, they have these considerations in mind when reviewing your application.
First and foremost, FIs need the assurance that your company will be able to pay off the loan. So it will help immensely if your company has a good track record so you can attest to the fact that it is indeed profitable, and hence can repay the loan.
There are a few documents that FIs use to gauge your company’s creditworthiness and that of its directors.
These are: The last two years of your company’s financial statements; at least six months’ worth of bank statements; the last two years of your company directors’ Notice of Assessment (NOAs); and lastly, your company profile information as listed on the Accounting and Corporate Regulatory Authority.
Part of the business loan broker’s job is to help you review these aspects of your loan application – and improve on them – so that you have a better chance of getting the loan.
No one works for free; and the same goes for a business loan broker.
It is important to be clear about each others’ expectations at the outset. Communicate your concerns and problems to the broker clearly. Do also let the broker know how urgently you need the loan so he or she knows how much time there is to work with.
Likewise, the broker should let you know how much he expects to be paid once the loan has been given the green light by the lender. Make sure you are happy with the fee.
Ask any questions you may have and read the contract carefully, including all fine print so you don’t end up paying for anything unexpected.
Business term loans generally fall into two categories – secured and unsecured term loans.
If you have collaterals or assets such as invoices, property, equipment or a car, you can consider applying for a secured loan.
Secured loans come with their own set of pros, and can be a viable option for both the borrower and lender.
But again, this depends on your needs. If in doubt, ask your broker if this is a good option given the state of your company’s finances and the reason you need a loan.
Bear in mind that you risk losing the asset you pledged if you are unable to make your repayments on time.
Defaulting is something that neither the lender nor yourself ever wants to happen.
However, the possibility, or risk, of defaulting should be factored in for any loan you apply for – specifically in relation to the loan principal, interest rate and tenor.
Ask the broker about what will happen if your company unfortunately runs into cashflow problems and is unable to make repayment for a month or two.
Check with the lender if there is any possibility of having a grace period or more flexible payment options for such circumstances before you commit to a loan.
Apply now with Lendingpot to connect to more than 45 partner lenders with just one application – at zero cost.
This is the shortened version of an article that was first published in Lendingpot’s July 2021 newsletter.
Belinda loves thinking about random stuff, and collecting useless bits of facts and trivia. She often roots for the underdog, and believes the world needs more happy endings.