Finally, you are ready to apply for a business loan. Everything is sorted, and you are ready to move to the next stage of your business. But wait, have you asked these important questions to your lender? Choosing the right lender is as important as choosing your business partner. Make sure you have clarity on all the terms and conditions of the loan, and that it perfectly suits your business.

Here are 10 questions that you should ask your lender before applying for a bank loan:

  • What types of business loans do you offer and which one suits my business needs best?

Ask your lender about the types of loans they offer. There are different types of business loans such as term loans, working capital loans, equipment financing, and government-backed schemes(MUDRA, Stand-up India) etc. Each loan has a different purpose and comes with its own advantages and disadvantages. Make your decision according to your specific needs and requirements. Additionally, ask your lender about their recommendation for you, as this can assist you in making your decision.

  • Is there any collateral requirement for this loan?

Both secured loans and unsecured loans are available in the market. Secured loans require the borrower to pledge some kind of asset as collateral for the loan, while unsecured loans do not require any security. Ask your lender whether there is any collateral requirement for your business loan. If you prefer not to provide collateral, look for other alternatives that do not require any collateral. Most of the government schemes do not require any collateral and are given based on the borrower’s creditworthiness.

  • What is the interest rate and is there any way to reduce it?

The interest rate is one of the biggest factors to consider while applying for a business loan. It varies from lender to lender depending on the type of loan, creditworthiness of the borrower and current market conditions. Always enquire if there’s any way to reduce your interest rate as it directly affects your cost of borrowing. If you have a good credit history, there are chances that you can get the loan for lower interest rates. 

  • How long is the repayment period?

The interest rate and repayment period are directly connected, as the length of the repayment period affects the total interest you will be paying. For example, if you have a longer tenure the instalment amount will be lower but in the long run you will end up paying more money as interest. On the other hand, with a shorter repayment period, the instalment amount will be higher but the total interest paid will be much lesser. Your decision should be based on your business’s cash flow and revenue cycles. Be sure to select a lender that provides flexible repayment options.

  • Are there any penalties/fees if I repay my loan early?

After taking the loan, if your business performs well, you may wish to close your loan early. However, some banks charge extra fees or penalties if you pay off your loan before the agreed tenure. To avoid any misunderstandings, it is best to discuss this with your lender before taking the loan so you can alter repayment strategies accordingly. 

  • What will my EMI be, and when is the due date?

EMI(Equated Monthly Installment) means the fixed amount you are required to pay each month. Once the loan amount is credited to your bank account, you will be required to pay EMI on a specific date of each month. It’s important to know about the EMI amount and due date as it allows you to plan your cash flows and budget accordingly. Moreover, if you fail to pay the EMI on the due date there will be extra fines and charges.

  • What is the typical loan processing time?

This is another important question that you should ask. The loan processing time depends on the bank and type of loan. Some banks take longer to approve loans while some do it much faster. Make your decision depending on how fast you need funds. If you need funds urgently, avoid lenders who take more time. Also, in some banks, online applications get processed faster when compared to offline applications. If that’s the case apply online for faster loan processing.

  • Am I eligible for this loan?

The eligibility criteria for business loans vary from lender to lender. It mostly depends on the type of loan, credit score, business age, turnover, etc. To increase the chances of approval, make sure to fulfil all the criteria before applying.

  • What are the documents that I need to submit when applying?

Even though the basic documents are the same, different lenders may ask for additional documents as well. So make sure that you know what all documents will be required before applying. The following are some basic documents that most lenders ask for:

  • Identity proof
  • Address proof
  • Bank statements
  • Business registration
  • Income tax returns
  • Business plan
  • Financial statements 

  • Are there any processing fees or additional charges?

Most lenders have processing fees which sometimes may not be disclosed unless you specifically ask. These fees consist of the administration cost involved in the process of evaluating and approving the loan. They may also have hidden charges like documentation fees, legal charges, penalties for late payments, franking charges, etc. These extra expenses can significantly increase the overall cost of your borrowing. So make sure that you have clear knowledge about all these charges to avoid any misunderstandings in the future.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline will help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. All public and private sector banks working in India accept our project report. Click to create your report.