If You Need a Loan, Give Good Answers to These
4
Questions
If you are applying for a small
business loan, you will want to answer the four questions
discussed in this article well. For loans for individuals, you will
want to answer the last four questions well since the first does
not apply.
1. Do you have a business plan? Surprisingly, many small businesses
do not have a business plan. If you intend to obtain a small business
loan you NEED at least a basic business plan. The plan should outline
what your business does, who your customers and target market are,
information about your competition, etc. Financial statements and
information should also be included. You can include income tax
returns, accounts receivable and payable information, anticipated
future sales and any other important financial details. Lenders
will, of course, be paying close attention to your financial statements
to help them determine whether you will be able to repay a loan.
2. Why do you need this loan? Please be prepared to explain the
purpose of the loan. You need to provide a good reason for using
the loan. For example, are you going to put an addition on your
house? Is it to help pay for a child’s education?
3. Do you have any difficulty paying your bills each month? If
you are an individual or couple applying for a loan, they do not
want to hear that you have problems paying your bills or that you
have often been past due. For businesses, lenders will want to know
that you can pay your bills and other debts as well. The lender
will determine whether or not your business does or will do well
enough so that you can pay back the debt without problems. Lenders
may evaluate the business’s debt to equity ratio. This is
the amount of debt divided by equity with a standard ratio being
2:1. If your debt to equity ratio is higher, you will not be likely
to receive a loan.
4. How is your financial situation or the financial situation of
the business? Keep in mind that if you are looking to start a new
business or if your business is established but very new, the lender
will look at your own (the owner/owners) financial situation. Lenders
will be looking for a business to have some decent assets or earnings
and earning potential. For individuals applying for a loan they
will want someone who has a decent income and may also be looking
for some collateral. Your credit history will also affect your chances
of obtaining a loan, as well as what interest rates you may be charged.
Be prepared to answer any questions that the bank may ask. Answer
honestly and thoroughly.
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