4 Essential Questions to Ask Before Getting a Loan

Most people get loans for business use. There is nothing wrong in applying for a business loan if you are really in need of it. Many folks that are starting up their own new company may decide to go this route. As long as you have the means to repay what you have borrowed, then there won’t be any problems with it.

All you need to do is to be extra careful in choosing a reliable and credible financial company. Not all those companies that offer financial help are to be trusted easily. You still need to do a background check of the company and make sure that the lenders are reputable! Even if you are in dire need of money, whether for small unsecured loans or secured ones, it still pays to be cautious from time to time. After all, it’s money you’re dealing with.

Here are some of the important loan-related questions you need to ask before starting a business or venture:

Do I have all the documents needed for the loan application process?

Once you apply for a loan, you will need numerous forms of documentation. It is highly recommended that you provide at least the last three years of your personal and business tax returns, financial projections for the next year or two, as well as personal financial statements. By the time you have completed and gathered these, you will have a greater chance of getting your loan approved through a financial institution.

What is my personal or business credit score?

A credit score has a big impact on the probability of you securing a business or personal loan . Prior to applying for a business loan, it is wise to work to raise your credit score by making payments on time, paying your previous debts, and getting rid of the incorrect information on your credit report. Remember, when your credit score is low, then it will be much harder for you to get your loan approved. Thus, make it a point to always pay your obligations promptly so as not to scare off lenders.

Will there be a penalty for loan prepayment?

This one really is a no-brainer, but I decided to list it here anyways. It is necessary to ask the lenders upfront if you can pay your loan earlier than the stated repayment period without a penalty. Some lenders would charge you if you do this. So, find out first if you can prepay or not! Having the prepayment option is a great idea if you think you will need a bigger line of credit soon. By simply paying off your credit in advance, the lenders would have a good perception about you and your business.

How long is the loan repayment period?

The repayment period is the loan term. In case that you have a longer loan term, then you will have to pay more interest. However, it could also mean lower monthly payments. And if you opt for a shorter repayment period, your monthly duties will be higher. This is something that you will need to balance for your own situation. It’s an important decision that could ultimately affect the outcome and viability of your business model. Therefore, it is up to you to carefully plan your loan term to optimize it for you.