Commercial Loans – Questions You Need to ask

Find out what questions to ask before you take out a commercial loan

Anybody in business will tell you that running a company is not without its challenges. Whether you’re just starting out or looking to expand your current operations, sourcing finance can prove to be an uphill struggle. Moments of uncertainty and seemingly insurmountable financial mountains can turn just about anyone grey and have you reconsidering your venture.

The good news is that this doesn’t need to be the case. A commercial loan may be a viable solution to your financing problems that stand between you and achieving your business’s goals. Read on to find out what you should consider before taking the leap.

The definition

A commercial loan is a funding arrangement between a business and a financial institution. It enables a business owner to cover expenses or expand operations that they would not be able to without financial assistance.

Questions to ask yourself

What paperwork do you need?

Preparation is key. Call Yes Loans before applying to make sure you are aware of the documents that will be required. These documents can be critical in backing up your request for a loan and addressing questions about your finances, business model and plans.

How much do you need to borrow?

This is not an easy one to answer because the line between need and want is often blurred. Establish the exact amount you need and how it is going to be spent to improve your business.

What do you need it for?

What you need the loan for will determine the most suitable loan for you. Just as the end needs to justify the means, so the solution must match the problem – use this as a rule of thumb. For example, getting a working capital loan would not be appropriate for the purchase of equipment or property.

Will the money help my business grow?

This can be the equivalent of comparing the purchase of a house versus a car using a personal loan. Though both are important, only one will realistically generate more value. Commercial loans should be treated the same, with preference being given to a commercial loan that is used to generate additional revenue for your business.

Questions to ask your lender

You’ve grilled yourself and still concluded you need a commercial loan. Here are a few things you need to ask your lender before signing on the dotted line

Will reports be required?

In many cases, your lender will ask for financial reports also known accountants figures or profit and loss as this will give a lender a snapshot of how well your business is performing. These reports provide insights as to whether you can continue to meet your obligations for repayment. Make sure to enquire what reports will be required and what the consequences of below par reporting will be.

How much collateral is there?

If you do opt for a commercial loan, lenders will look at all types of security. Plant, equipment, motor vehicles, receivables, or property (usually as a last resort).

Does the loan have a prepayment penalty?

This does sound counter intuitive but lenders can levy a penalty for early repayment on loans. You may reach a situation whereby you can repay your loan early, but this doesn’t mean it will happen without an additional cost. When you pay off a loan early, the lender doesn’t get all the interest they would otherwise have received. In order to secure some of the profit they would have made on your monthly payments they charge a prepayment penalty.

Commercial loans, when secured, can secure your company’s expansion, increase your cash flow, refinance an existing loan, help you purchase inventory, hire more staff or simply help build your business’ credit for the future.

Through Yes Loans, business car finance, business equipment finance as well as a host of other finance solutions can be accessed, subject to assessment. With our fast approval times, you will want to contact us today and find out what we can do for you and the future of your business.