Five questions to ask before accepting any business loan offer
Receiving a loan approval can feel like a relief, especially if you've been working hard to secure funding for your business. But before you accept, take time to evaluate the offer carefully. Here are five essential questions every business owner should ask.
1. What is the true total cost of this loan?
Look beyond the monthly payment. Calculate the total amount you'll repay over the life of the loan, including all fees. Compare this to what you're borrowing to understand the real cost.
For example, a $50,000 loan with a factor rate of 1.35 means you'll repay $67,500—a cost of $17,500. Is that worth it for your business goals?
2. How does the repayment schedule affect my cash flow?
Daily or weekly payments can strain cash flow more than monthly payments. Consider:
- How consistent is your revenue?
- Do you have seasonal fluctuations?
- What happens if you have a slow week or month?
Make sure the payment schedule aligns with how your business actually generates income.
3. Are there prepayment penalties?
If your business does well, you might want to pay off the loan early. Some lenders charge penalties for early repayment, which can eliminate any savings from paying down principal faster.
Ask for the specific prepayment terms in writing.
4. What are the loan covenants and default triggers?
Understand exactly what could put you in default:
- Minimum balance requirements
- Revenue thresholds
- Restrictions on other financing
- Required insurance or collateral conditions
Violating these terms can have serious consequences, even if you're making payments on time.
5. Have I compared this to other available options?
Before accepting any offer, make sure you've explored alternatives:
- Have you received quotes from multiple lenders?
- Are there SBA programs you might qualify for?
- Could a line of credit work better than a term loan?
- Is the timing right, or would waiting improve your options?
Don't Rush the Decision
Lenders may pressure you to decide quickly, but a responsible lender will give you time to review terms carefully. If you're feeling rushed, that's often a red flag.
Consider working with a funding consultant who can help you evaluate offers objectively and ensure you're getting the best terms for your situation. Contact us to discuss your current offers.