There are dozens of reasons why all small businesses, regardless of size or profits, may need to borrow money from time to time. From commercial real estate loans and equipment loans to lines of credit, financing can help you maintain cash reserves, prepare for future growth, and manage cash flow to not only keep your bottom line healthy but also keep your small business from missing out on important long-term opportunities.
However, navigating your loan options and finding the best one for both your particular goals and current financial picture can be daunting. In order to ensure that your lender and your loan are a good match for your small business—today and for years to come—there are some important considerations to keep in mind. Additionally, knowing what to expect during the application process can help it go more smoothly, saving you time and stress. In this post, we’ll discuss important questions to ask your small business lender as you prepare for your commercial loan application. Keep reading to learn more!
Do you have experience lending to other businesses in my industry?
Every industry has specific lending needs and certain lending products will meet those needs better than others. Additionally, working with a banking partner who is familiar with your general business operations can ensure that they can find the best loan for your purposes, as well as provide additional insights to help you make sound financial choices.
When seeking out a lender, be sure to inquire about their experience in your industry. This will not only help you narrow down your list of potential banks to work with, but also help you find the right lender within a preferred financial institution.
What kind of loan would you recommend for my business?
As we mentioned above, every industry has specific lending needs, based on their market and verticals. Furthermore, different expenses—whether ongoing or one time—and different financial goals will best be served with different lending products. Instead of walking into your business loan application blindly, leverage the extensive experience of a commercial lender to help you find the right type of loan for your situation, before you even apply.
Commercial lenders can help business owners understand the different available loans, compare individual products and terms, and prepare for the application process (more on this below). More than large institutions, community banks will often take the time to use a consultative approach when working with small businesses to ensure that they get the funding they need. Take advantage of this, and don’t be afraid to ask for recommendations.
What documents do I need for the application process?
Because the exact documents and information you need will vary by lender and lending product, it’s a good idea to ask for these details before you begin your application to avoid delays. You’ll typically need to provide:
- Financial statements for your business, including bank and credit card account information, investments, and any additional debts you’ve incurred
- Documentation to prove the existence of your business, such as government registrations
- Corporate tax IDs
- Information about assets including properties and equipment—especially if you plan to use them for collateral
You’ll also need to be prepared for a personal and/or business credit inquiry.
How long does the lending process take if I’m approved?
One of the benefits of working with a local lender is that you’ll typically experience a faster review and approval process than you would with a larger, national financial institution. Ask your lender how long they expect the approval process to take, not only for your peace of mind, but also to avoid putting your loan application in jeopardy by taking out additional debts or making other financial changes in the meantime.
If you need the financing in the very near term, it’s a good idea to let them know your timeframe expectations—they may recommend an alternative product or be able to provide additional tips for how to ensure a quick loan approval process.
What rates and fees can I expect from the loan process?
Lenders should be able to estimate how much you will need to pay in fees associated with the loan process, as well as how rates and fees may be dependent on your credit score and other factors. Knowing this information up front can help you budget for your application or pivot toward the most affordable lending option. Keep in mind that before an application is approved, specific fee information may be merely an approximation. Asking for a range or about possible extra charges before you apply can help you avoid unpleasant surprises down the road.
What will my payment schedule look like?
Payment terms and schedules can vary from loan to loan, so take the time to discuss this with your lender to ensure your loan fits into your current cash flow expectations. While many traditional loans are paid on a monthly basis, the terms of your loan may specify a different payment schedule, such as biweekly or quarterly payments, or a large balloon payment at the end of the loan.
Examine your monthly or quarterly cash flow over the past 1-2 years to be certain you have adequate funds each payment period to cover your payment, working with your accountant or lender to help you determine a budget and the feasibility of a specific payment plan. Your lender may recommend lengthening or shortening your loan’s term to make it more affordable month-to-month, or save you money in the long run.
Is a personal guarantee required for the loan?
Your lender may require you to be personally liable for your commercial loan. This means that should your business fail to meet its financial obligations, you (the owner) would be responsible to pay back your loan using your personal funds—even if your business no longer exists during the life of the loan. Speak with your lender to see what their specific requirements are before you apply.
What other services can you offer to help grow my business?
Loans for your small business are just the start of your relationship with a bank or lender. When you partner with a trusted, local lender, they can become an ongoing resource for your small business, matching both your current needs and your goals for growth with other banking products and services.
From commercial deposit accounts and treasury management services, including merchant services to help you easily accept payments, to commercial insurance to cover your business’s assets and care for your employees should the unexpected occur, a good banking partner can help you streamline your financial management to save you time and money. When applying for a loan, ask your lender what else their financial institution can do for your small business.
Let Us Help You Reach Your Business’s Goals
Whether you’re ready to apply for a Business Loan or Line of Credit or are still exploring your financing options, we can help. Our knowledgeable Market Leaders can give you the benefit of local experience and insights to help you navigate your options to make sound borrowing decisions. And with our full array of small business banking services, you can simplify all your financial needs under one accessible and dedicated banking partner.
Call or visit your local branch location in Virginia or North Carolina or make an appointment with us today. Our regional commercial banking teams are here to answer all your lending questions and assist you in finding the right financial products to meet your business’s unique needs.