Five Questions Business Owners Should Ask Their Lenders
If you’re like most business owners, you probably have to finance part of your business when you first begin operations. Attaining finance from a lender can be an intimidating process – it is an arduous task that you may not have past experience with. For this reason, you should always be prepared to ask hard hitting questions to your lender prior to agreeing to any financial arrangements. Financial contracts are complicated, you need to ensure that your understanding of the agreement is the reality of the contract. If you ever feel confused about a particular area of your loan agreement, do not hesitate to ask questions. We’ve written this post to provide you with five insightful questions you should ask your business loan lender in order to avoid complications further down the road.
1. When is My First Payment Due?
This may seem like a simple question, but it’s important to understand exactly when your first payment is due. Missing a payment can negatively impact your business credit score and result in various fees or charges. Because your business may only begin operating shortly after you get your initial business loan, you have to make sure you have set aside enough capital to service your debt. Some loans are paid monthly, while others are paid off daily. Make sure you know the exact terms of your loan and its payment requirements. If you need additional time to make your first payment, this should be discussed prior to signing any legal agreements.
2. Do You Work with Business Owners in My Industry?
You would be surprised at how much time people waste trying to find the right lender for their business. One way to eliminate such wasted time is to make sure that you’re eligible to receive finance from the lender. Some lenders only work with specific companies in specific industries – they’re financing may be set up to cater to a certain type of business model. This may sound annoying but it can also be beneficial for you. If you have a lender that is experienced with companies in your industry, it is likely your payment arrangements will be more suited to your business. In addition, they may have other forms of finance that will be of use to you down the road. If you’re talking to a range of lenders, try and source the lenders that have the most experience working in your industry.
3. What is The Total Cost of My Loan?
Most lenders will be very upfront with you about the interest rates that you are expected to pay on your debt. But this shouldn’t be the only financial information that you receive from them. Make sure to ask what the total cost of the loan at maturity is – it’s a way better way of understanding your total liability. The amount that interest generates over an extended period of time can be deceiving – but it’s not just interest, it’s also charges and fees associated with your loan. If you’re receiving a number of quotes you should ask each lender to provide you with a full break down of principal loan amount, interest liability, and fees and charges – resulting in a total cost of the loan. This will give you a better idea of the real cost of your financing – don’t let a lender hide behind hidden costs that will make you think the interest rate you are being offered is less than it actually is.
4. How Quickly Will Funds Be Accessible?
If you’re looking to get finance quickly in order to take advantage of an opportunity that has arisen, you may be shopping around to see who can get you the capital the quickest. For this reason, it’s important to ask your lender upfront how long the entire process will take. You don’t want to waste time with someone who will take weeks for approval, especially if that means you may miss out on the opportunity you’re currently attempting to invest in. Be upfront with each lender that you visit – tell them your situation and how quickly you will need the capital. Only work with creditors who will be able to give you a reasonable timeframe.
5. Do You Have Testimonials?
It may seem unnecessary, but you should always research the customer service experience that past borrowers have had with your lender. You don’t want to enter a financial arrangement with someone who acts unethically or hides costs down the line. Ask your lender if they have any testimonials, and whether they’d be comfortable with you contacting some of their current business clients to get a better feel of how they’ve felt about the creditor’s customer treatment. In addition, head online and do thorough research on the various lenders you are receiving quotes from. Plenty of online consumer awareness groups allow for honest reviews to be posted. You’d be surprised that many large lenders in the United States have horrible customer service records – don’t get tricked by the name and brand awareness of the company. Always make sure that you do your due diligence in regards to the track record of your lender prior to entering any financial agreements.
Don’t Assume Anything
When dealing with financial institutions, it’s important not to assume anything. For this reason, ask as many questions as you have and don’t feel embarrassed for seeming to be a hassle. Many banks and lenders make money out of hidden and sunken costs, if you’re unaware of these you may end up being unable to meet your financial obligations. In addition, you may be responsible for certain things that you are unaware of – such as an unorthodox payment system – don’t let it catch you by surprise and end up costing you both money and a negative mark on your business credit report. There are plenty of great lenders with awesome track records for transparency, you just have to find them. Fortunately, with the internet and other consumer resources, it’s easier than ever to find out the information you need about any lender on the market. Don’t trust anyone that doesn’t have an established presence online.
Jason is a Senior Author for SBL. He has been working with small business owners like you for the past ten years. He graduated with an MBA and began a career as an independent financial consultant for small businesses in his state.