Applying for a business loan can be time-consuming, but taking the time to evaluate and thoughtfully prepare before meeting with a lender can be beneficial. For one, you increase the likelihood of getting the financial capital you need.
For another, you know exactly why you need money in the first place. To help you focus your thoughts, ask yourself these questions.
Question 1: Why do I need financing?
Sometimes the simplest questions are the most important. Before comparing Australian business loans at iSelect, seriously ask yourself why you need the money you need.
Loans aren’t just free money; you eventually need to pay them back with interest. Are you optimistic that you can’t come up with the cash in a few weeks, months, or years? Depending on the project, you may be able to hold off a bit longer before you must take on a loan.
However, if you don’t have enough cash flow to stay competitive, you’ll likely need a loan. After making that decision, confirm exactly how much you need, what payment terms you can afford, what payback options you can handle, and how quickly you need the money.
Question 2: What are the minimum requirements for a loan?
If you’re a new business owner and don’t have a lot of capital built up, you likely won’t have as many options as someone who has already operated successfully for 2-5 years.
That doesn’t mean you won’t be able to apply for a loan, but you’ll likely have less money available to work with. Banks that offer unsecured loans will run a credit check, so if your credit is 650 or higher, you’ll likely receive financing. Always be aware of what your options are.
Question 3: Will the bank/lender pull a hard credit check?
All financing applications will ask for your permission to run a credit check. Some lenders will check your creditworthiness with a “soft” pull, which won’t affect your credit score.
Soft credit pulls allow borrowers the option to apply with multiple lenders, but hard pulls can only be done 2-3 times before they start to damage your credit. Ask if the lender is pulling a hard credit check and call a credit reporting agency afterward to see if the check was soft.
It’s better to be safe in this respect, as reporting agencies won’t care if a lender lied to you.
Question 4: Will lenders report my credit history?
Many online lenders won’t report your payback habits or loans to major credit bureaus. While this is a major positive for people who pay late, this fact is often disappointing for others.
Borrowers who want their good payback habits to have an impact on their creditworthiness should ask their lenders if they report their loans to the appropriate business credit bureaus.
Question 5: What is the total cost of the loan?
Businesses accepted to receive financing should ask for the total breakdown of their loan amount each month, quarter, and year. A $10,000 loan won’t cost you $10,000 after you factor in the Annual Percentage Rate (APR) or the Annual Interest Rate (AIR).
It’s beneficial for businesses to inquire about your cost as cents on the dollar. For example, if your interest rate is 8%, you’ll pay 8¢ every time you pay a dollar on your loan. In the end, you’ll pay an extra $8,000 on a $100,000 loan for a total loan amount of $108,000.
Knowing the loan’s actual cost will make it easier for you to determine if you can pay it off.
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