10 Questions Banks Will Ask When You Need A Business Loan

Entrepreneurs, new to the business world or old players, one thing that you all will need for the growth of your business is enough capital. Many people around us never get the chance to turn their business plans into reality just because they don’t have sufficient capital or, they are never able to unleash the true potential of their business and grab the opportunities they want to expand their business. The best-case scenario is; you have all the money you need to start with your updated business plan or capital to invest in your business to increase its volume or tap new opportunities.

But what if you do not have the desired amount of money and you are courageous and confident enough to take risks for your business ideology? A loan is your way out for sure, there are several types of loans available in the financial and banking sector that are broadly classified into Secured Business Loans and Unsecured Business Loans. Secured business loans are backed up by collateral hence provided with low-interest rate whereas unsecured loan involves great risk of default at the end of lender that is why they are charged with high-interest rates but are a great deal for borrowers because of the limited liability.

With Secured or Unsecured loans bank is going to give you a real tough time that you will start wondering, Do I really need this loan? But not to worry about that is what we are here for? We will discuss the 10 most crucial questions that banks ask while giving business loans that will help you to succeed in the most intense interrogation session.

1: What is the exact amount of money you need?

This question sounds very basic and easy to answer but it has the most important answer hidden in it; that is do we really need the amount of money we are asking for? Is there any possibility that we can settle for less amount? Are we exaggerating our business need and potential? All these questions are hidden in one question, what is the amount of money you need? You have to quote the amount with complete rationale, a well thought upon figure should be your answer not just a random ballpark figure.

2: What business belongings do you have?

Wondering what bank has to do with your collateral?  Banks are always interested to know what will be the other options for recovery in case you default. This might sound horrible to you but banks have to keep every aspect into consideration. If your business is new, and they are not sure about the exact potential, they need some fixed assets’ security that back your business. Usually, for small businesses or startups, personal assets that include a house or land ownership keep as collateral.

3: What is your business plan?

In this scrutiny, your business plan will play the most crucial role. Banks need to see. Does your business plan have what it takes to stand out? They will not demand a pile of documents, they rather need a brief business plan through which they can see prospects and potential of your business. It is one of the most crucial steps and you need to be very well versed with all market conditions in which you operate, to get through this.

4: Does your business have the potential to survive in the market?

Must be wondering how many times you have to prove your potential? You have to reassure banks in every question that you are capable and your business is capable of the growth that you have chalked down on the paper. Be ready to answer every tiny detail not only related to your own business but related to your competitors as well.

5: In what ways you will utilize the money?

You have to be categorically certain that in what ways you will be using the money you are borrowing. You cannot give them vague answers. Vague answers will make them doubt the genuineness of your needs. Tell them if you need to buy some machinery, equipment or a bigger workplace along with all the possible positive impacts they will bring to your business.

5: Complete credit details of your business:

Your credit details will tell the lender about the financial stability of your business. With the help of business credit details, they will be able to learn about your reputation in the business market, your track records. In other words, credit reports enable banks to evaluate the probability that how on-time you will pay back the loan.

6: All details of your business; account receivable and payable:

If you think this information is quite confidential to disclose to any third party, you better not. Banks when sanctioning the loans they act as your partner.  There is nothing that you can keep confidential from your partner, similarly, banks need to know everything to come up with a final stance about the financial stability of your business.

7: Is your business insured?

If everything turns out to be perfect, still, some factors can yield unfavourable results to your business and banks have to keep this into consideration as well. Any natural calamity, fire eruption or any unfortunate incident of the same nature can turn the situation upside down. For this banks need assurance that your business is insured and their money is recoverable in such incidents.

8: What are your personal belongings?

Your personal belongings are your private matter for sure but, if you are going for secured loans you have to disclose them to the bank. These details give banks the assurance that you are a reliable borrower and have strong grounds to pay back the loans.

9: What will be the future ratios to help decision making?

The most important part that covers the future possibilities to pay back the loans and decide the terms on which your financial stability will be accounted for. Laying down terms and conditions before the agreement is made between both the parties is very important for impartial disposal of the affairs.

10: What will be the possible ways of paying back the loan?

Technically this question should be asked initially but banks put more of their time in scrutinizing how genuine your case. Terms and conditions are usually preset according to the bank’s policy but there is always room for negotiation that you must avail.

Applying for bank loan is something everyone is afraid of, there is a general concept that after going through all the long-tiring documentations and detailed scrutiny banks still turn down loan requests and all the efforts and time you put go in vain, I won’t say it is not true but before taking your application to the bank do your personal scrutiny with all the points we have discussed above, this will surely increase your chances of getting your loan approved.