5 Questions That Business Loan Providers Often Ask

Getting a loan is a great way to raise funds to either start a new business or help an existing one grow. However, before obtaining a business loan, you must learn more about it and familiarise yourself with the application process. This way, you’ll make smart and informed decisions and get a loan that perfectly suits your business’s needs.

One way to start your journey to better loan literacy is to read up on the questions that lenders usually ask. By doing so, you can prepare your answers and increase the chances of getting your business loan approved. We’ve listed a few examples below:

How much money do you need?

Answering this question isn’t just about stating the dollar amount you want to borrow. It’s also about showing lenders that you’ve given the loan application process a lot of thought. When asked this question, be prepared to bring out paperwork that will explain how you’ve calculated your loan amount and prove you’re not just pulling a number out of thin air.

What do you want to do with the loan proceeds?

Lenders want to make sure that the money they’re loaning out will be used for business growth, which increases the likelihood that the borrower will pay off their loan. If you encounter this question, you must be able to explain where the money will be going and how this purchase or expense will help your business. For instance, if you’re borrowing money to open a second branch, point out that expanding to another location will allow you to cater to customers who live far away from your first branch and that this will ultimately increase your revenues and profits.

What does your credit history and risk profile look like?

Whether you’re getting cheap loans in Sydney or applying for bigger loan amounts, your lender will go through your personal credit history as well as your business’s credit records. This is a key part of their risk assessment process, which allows them to determine whether or not they can safely entrust their money to a loan applicant. If you’re not quite sure what your credit profile looks like, take the time to review it before you apply for a business loan and see if there’s a way to make improvements. By boosting your credit profile, you’ll show that you’re a good and reliable borrower and encourage lenders to quickly approve your loan.

Can you provide the documents we require?

Most lenders will require you to submit your latest financial statements. These documents include your business’s balance sheet, income statement, and statement of cash flow, and they should preferably be prepared by a trusted business accountant. Aside from financial statements, you might also have to procure the following:

• Identity documents such as your passport or driver’s licence
• Latest individual tax returns
• Latest business tax returns
• Notice of assessment from the ATO
• Business activity statements
• Individual bank statements
• Business bank statements
• Proof of company registration or partnership agreement
• Business plan (for startups)
• Cash flow projections (for startups)

Are you able to repay the loan on time?

Provide proof showing that your business has good cash flow and that your revenues can cover not only your monthly loan payments but also other expenses. You’ll also want to prove that your assets and savings are enough to support your business through financial challenges and that you can still repay the loan no matter what happens.

Knowing the answers to these questions won’t automatically lead to business loan approval. However, it definitely can raise your chances of having your loan approved and obtaining the funds you need to achieve business growth.

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