So your small business is doing well and it’s time to expand, or maybe you’re just starting out and you need some resources to get things up and running. Either way, chances are you’re going to need a loan.  This means going to a lender, which, as anyone who has ever bought a car or a house already knows, can be a scary proposition. Fortunately, there are a lot of things you can do to help reduce the stress (and ensure the success) of your quest for a small business loan.

Here are some questions your lender is likely to ask.  If you have your answers ready, you’ll not only expedite the process but you’ll look like a much better prospect in the lender’s eyes!

  • How are you going to repay the loan? Usually, your lender will want to see two sources of potential repayment: cash flow from your business, and some form of collateral. If you don’t have sufficient collateral, you may need a co-signer who is willing to put up collateral.
  • Does your business collect revenue and pay its bills? Does it control inventory and expenses? Managerial acumen is an important part of business success and your lender will want to know that your business is being run efficiently. Show them your business has processes in place to effectively collect revenue, manage assets, and pay vendors timely. A well-run business is more likely to be successful and to pay off its debts.
  • Does your business have systems in place for proper financial reporting? Your banker is going to be asking for financial reports upon which to make a financing decision, and they will want the same on a regular basis during the life of the loan. A solid accounting system creates confidence in the mind of the banker that they will be kept well informed during the life of the loan. It’s part of the key to establishing a solid long term relationship with your banker.
  • Is your business meeting profitability standards? Are sales growing, and are profits as a percentage of sales increasing? A lender would rather their loan be repaid through cash flow from the business rather than selling off collateral, which is often laborious and uncertain. A business that is at least meeting their industry standards for profitability is more likely to have the money to pay off a loan.
  • What does the future of the industry look like? Many small businesses fail because they don’t look ahead. Having knowledge of the trajectory of your industry and a plan to adapt to industry changes will make your company more likely to succeed, and make lenders feel more confident.
  • What does the competition look like? What are their strengths and weaknesses? In addition to looking at the future of the industry, it’s important to know what the landscape looks like right now, and who else is working in the same field. Whatever your business, there’s always going to be competition, and lenders are going to want to know that you’re aware of them and the challenges they pose. They need to see that you have a plan for how your business is going to succeed in a competitive marketplace.

When you go looking for a small business loan, it’s important to remember that lenders aren’t the enemy. Lenders want to give out loans—that’s what they do, after all—but they’re in business too, and it’s their job to make sure that the money they loan is likely to get paid back. If you come to the table prepared, showing that you’re knowledgeable about your field and committed to your business, they’ll feel a lot more comfortable lending you the money your business needs to succeed.


Financial Optics serves business owners and entrepreneurs with remote web and cloud-based finance applications. Let our professional accountants run your daily, weekly, or monthly bookkeeping and accounting, so you can run your business. Contact us by phone at (913) 649-1040 or click here to visit our Contact page.