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Questions That Will Be Asked by Your Banker |
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When applying for a Business LOC, you banker will want to know many things about your business and your personal financial status. Below is a list of questions that you should be prepared to answer when working with a bank, specialized lending company, or other financial institution.
Question 1 – What type of business are you in?
Many businesses going through boom and bust cycles that follow the economic growth or decline of the general economy. Your banker is going to want to know the specifics of the industry within which you operate, how you intend to meet your credit obligations during difficult economic climates, and what product orservice you provide to your customers.
Question 2 - How much money are you looking to borrow?
When acquiring a business line of credit (Business LOC) or business loan your lender is going to want to know specifically how much you want to borrow, what interest rate you are looking for, and what you intend to do with the debt funds. Within your business plan, you should clearly show projections with an anticipated interest rate and for what purpose you will be using the financing. Of all the questions discussed in this article, this is probably one of the most important questions to answer. Interest rates for business lines of credit usually are quoted as prime + a certain percentage with a floor. In other words, the interest will never go lower than a specified floor amount. The stronger your business' credit, the better interest rate you will be able to negotiate. Annual interest rates can range from around 5% with a bank line of credit to over 30% with certain types of specialty financing.
Question 3 - What type of collateral do you have to secure the business LOC?
Second in importance to how much you are borrowing and what you intend to do with the loan funds, a bank is going to want know what type of collateral will back the line of credit. You should review both your business assets (such as accounts receivable, property, or equipment) as well as your personal assets (such as your residence, vehicles, or investments) that can be used as collateral for the credit facilit
Question 4 - What are your annual revenues?
With any credit line, a bank or finance company wants to know your annual revenues, your profit, and if the amount of money you are borrowing can be repaid with the amount of money that are making. A well prepared business plan should include Profit & Loss statements and a Balance Sheet that demonstrate that you will be able to continually make the monthly payments (on both principal and interest) for the credit obligation you are undertaking.
Question 5 - What if the business does not work out?
Although this is a difficult topic to discuss, it is important to think about the consequences of what should happen if the business fails. In your business LOC proposal, you should clearly showcase what you will do in the event that the business fails. Will you sell the tangible assets of the business? Will your income from other sources support the payback? These are all questions that you should think about thoroughly. |
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