Obtaining a small business loan can give your venture the quick injection of cash it needs, not to mention offer a cash safety net during seasonal changes.
While business funding can offer many positives for your business, it is a decision that shouldn’t be made lightly. There are a number of questions to ask before you apply for a business loan (both to yourself and your lender) to ensure a small business loan is right for you.
Today, we’ve outlined 20 of the key questions you should consider. Just to make it even easier for you, we’ve even provided some of the answers!
Questions to Ask Yourself Before You Apply for a Small Business Loan
- How much money does my business need to borrow?
- What will the money be used for? How will it help my business in particular?
- How quickly do I need the funds?
- What does my credit profile look like?
- Can I afford the monthly payments?
- Do I want a short term or long term loan?
- Do I want to seek funding from an alternative or traditional lender?
Questions to Ask Your Lender Before You Apply for a Small Business Loan
Your lender plays a huge role in your financing journey. In fact, choosing the right lender could mean the difference between your venture sinking or swimming, particularly when it comes to acquiring your funds quickly and being able to meet repayments.
At Lumi, we believe that a lender should be honest, upfront, and completely transparent with their loans. In fact, they should have all of the answers to the questions below readily available on their website, so you don’t need to ask them in the first place.
Nevertheless, we’ve listed the most important questions that you should ask your lender, along with our own answers to serve as the benchmark. Don’t settle for anything less!
Do you provide loans to my specific industry?
Some lenders may only provide financing to specific industries, so it’s always important to ensure you’re eligible for a loan before you begin the lengthy process. At Lumi, we assist SMEs across a wide range of industries to ensure they can access the capital they need. Just some of these include: retail, hospitality, trades and labour, health and wellness, franchises, and professional services (to only name a few).
Do I need to put up collateral for the loan?
Depending on whether your lender offers secured or unsecured loans, you may have to put up collateral. Personally, we don’t believe a small business owner should have to risk losing a valuable asset such as their home or car to secure a loan. This is why we offer unsecured loans, which come with a personal guarantee from the business owner (rather than collateral).
What are the interest rates and the total cost of the loan?
If a lender isn’t being upfront about this information before you apply for the loan, then they may be hiding things from you, such as additional costs or charges. At Lumi, transparency is what sets us apart from other lenders, so you’ll find we answer these questions on our webpage.
Because our loans are repaid within a shorter time frame (usually in 6 months), we don’t believe in using an annualised interest rate to describe our loans. Instead, we provide you with your entire repayment amount upfront, including what your weekly payments will be. Customers can also calculate the total cost of their loan and their repayments themselves by using our simple loan repayment calculator.
Are there any additional fees or charges you haven’t mentioned?
Plenty of lenders will charge hidden fees or charges, so ensure your lender isn’t one of them. At Lumi, you’ll find that we don’t believe in sneaky surprises, so are totally transparent with what a loan (including its total cost) entails.
What will my repayments be?
Knowing what your weekly repayments will be is one of the most important aspects of your loan, especially as you don’t want to fall behind. Not only should your lender disclose this amount to you before you sign off on the loan, but at Lumi, we go one step further and let you calculate your weekly repayments yourself using our loan calculator.
Will I pay weekly or monthly?
Your repayment schedule will also be determined by your lender, however some may give you a choice of weekly, fortnightly, or monthly repayments. At Lumi, our customers enjoy making weekly repayments, as it’s a smaller and therefore more manageable amount being deducted from their nominated account.
What are the requirements to apply for a business loan?
When you’re considering a small business loan lender, whether traditional or alternative, this should be one of the first things they disclose on their website. After all, no one wants to spend time filling in an application form, only to realise later that they weren’t eligible to apply in the first place.
At Lumi, we have three very straight-forward requirements for loan eligibility. To qualify, you just need to be running an Australian-registered business which has been in operation for at least 6 months, producing a minimal annual turnover of $50,000.
What is your application process?
Keep in mind that traditional lenders (such as banks) will require a much lengthier application process than alternative lenders. This is usually because they require more information, along with assets to secure the loan (if applicable). Lumi, on the other hand, offers a quick and online loan application that takes just minutes to complete. We only require minimal details to get started too, including your driver licence, ABN/CAN, and credentials for your online business bank account.
How quickly can I receive the funds once approved?
Be aware that some lenders (particularly traditional lenders) can take weeks to approve your loan, let alone give you your required funds. At Lumi, we believe businesses should have access to the capital they need, as soon as possible. This is why, once approved, we deposit your required funds into your nominated bank account the very next business day.
Are there any penalties for repaying the loan early?
Did you know that some lenders charge an early repayment fee? Sounds kind of unfair, doesn’t it? At Lumi, we don’t believe in applying penalties if a customer wants to repay the entirety of their loan early. In fact, we’re one of the only lenders who doesn’t charge early repayment fees.
What if I can’t make a repayment or if I fall behind?
Does your lender offer flexibility if something unexpected happens and you can’t make one of your repayments on time? What if you begin to fall behind? For many lenders, this can be a deal breaker, putting your business or the collateral you originally pledged at risk. Here at Lumi, we pride ourselves on excellent customer service. If you’re experiencing financial hardship or can’t make a payment on time, we’ll discuss your options with you personally and reach a solution together.
Can I change my loan amount at any time?
What happens if you want to increase your loan halfway through? Does your lender allow you to do so? While at Lumi, we will happily discuss this option with you, some lenders may not be as flexible. Therefore, it’s important you ask this question before you sign off on your loan.
Is my information protected?
How important is privacy to your lender? (Hint: it should be of the highest priority!). At Lumi, we pride ourselves on being transparent about how we collect, use, exchange and protect your information. Our team are passionate about using advanced and trusted cyber security and data protection to ensure your personal and financial details are kept safe.
There you have it – 20 questions to ask before you apply for a business loan. By knowing what questions to ask both yourself and your lender, we hope you can make an informed decision about what financing is best for your venture.
Want to find out more about Lumi? Check out our helpful FAQ page.
For a fully transparent small business loan that takes just minutes to apply for, get started with Lumi today.