4 Questions to Ask Your Small Business Lender


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You need to note that before you sign any documents, you need to ask questions of your business lender. If it's too late to change any of the terms of the loan after you've signed the document, you can't change it, whether you're satisfied with the terms or not, because these documents are legally binding, so it's important to ask questions before you sign.

The first question is: What are the costs and how much are they?
Generally speaking, the cost of a loan will exceed the interest you will have to pay because it includes all the associated costs of obtaining a loan, such as documentation, processing, and so on. There may also be a referral fee for referring the lender. There are a lot of small fees, so it's important to be clear about all of them and what they're for. If you know what they're for and you feel like they're unreasonable and need to be bold enough to question them, at this stage you can eliminate the fees that you feel are unreasonable.

Second question: What are the loan requirements?

Generally speaking, it is common for business loans to put forward special financial requirements and conditions in the loan agreement. For example, after obtaining a loan, you are required to open an account with the lender, buy some insurance or achieve certain financial performance. When you fail to meet these requirements, your loan will not be legally recognized and will be considered in default. So before you sign a contract, you need to know all the requirements of the terms, you need to evaluate whether you can meet them, and if they are more than you can handle, you need to reconsider. Of course, if there is something you feel is unreasonable, you can bring it up and negotiate with the lender.

Third question: Is collateral needed?
Initially, the lender will ask you to put up some personal or business property as collateral for a claim that will guarantee repayment of the loan. If the terms of the loan clearly state that collateral is required, you need to be clear about the requirements. Evaluate whether key requirements are reasonable. However, you also need to be very careful in your mortgage and ask the lender to demonstrate the need for the collateral. As you make regular payments, you and the lender are building a relationship of trust, and the terms of the collateral needed should change.

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Fourth question: Will there be any penalty if I repay the money in advance?
If you pay in advance, you will have to pay a penalty. Many people may not understand why they have to pay more money when it is a good thing to pay in advance. Because the first year is when interest is highest, banks want to try to prevent borrowers from paying back before that date, so as to collect as much interest as possible. Once you want to prepay, so that the bank can not earn enough money, naturally will want to use another way to earn back in a roundabout way, namely liquidated damages. So if you don't know ahead of time, you're going to lose out. You need to make sure that the prepayment penalty is included in the document before you sign it.

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