Top Questions Before Applying

How many business owners actually know what they will be expecting before applying for a working capital loan? 

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This is hardly the case. Usually, when an SME is in need of capital, they need it immediately. At the top of their mind, it is to save the company. No matter if a business is big or small, a loan is one of the main factors to keep a company running smoothly. It will be good to understand more that you think you need. 

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Making sense of business loans can be tricky, so we put together this simple guide to help you make the right decision for your business. 

 

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Are they going to pull my credit scoring?

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Even though you're looking for financing for your SME, a lot of lenders rely on your personal credit to approve you, and to penalize you by reporting issues back to the credit bureau if you don't pay them back on time. This includes products like lines of credit, invoice factoring, and term loans. Especially with the banks, who are more stringent in looking at personal credits. 

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Are they going to contact my customers?

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It will depend on the type of financing product that you apply, like invoice factoring, which give you money up front for unpaid invoices but require your customers to pay them back directly. Some SMEs do not mind a lender making contact with their customers, but others do not want a third party interfering with their customer relationships because it could lead to an uncomfortable conversation with the customer. 

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Are they giving me more capital than I need?

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Oh, this is definitely not a problem. Which businesses do not want more capital?

Do consider your company's financial debt ratio before embarking on the maximum loan quantum then you can afford.

If you get a huge loan for more money than you need, you still will have to pay interest on the entire amount, not just what you use. That can add up to a lot of unnecessary interest payments.

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Are they transparent in fees?

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Keep an eye out for things like origination fees, subscription fees, maintenance fees, and prepayment penalties. These fees are often tacked on in addition to the interest rate and might be covered only in the fine print. Unless you are sensitive to numbers and figures, you may not take much into consideration unless advised by a seasoned consultant who is on your side. 

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Will I get into a debt spiral?

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Some financing loan products allow you to extend your debt past the final term period. Usually, these products add fees to the interest you already owe, which can create an ever-increasing debt that can be very hard to pay down. Worse still, you may end up taking another loan from another lender to cover up the existing one.