Category: Business Loans

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Business Loans Guides

7 Questions Lenders Ask During a Business Loan Application

Filipina business owner in a loan interview, talking to two lenders

If you’ve ever had to take out a personal loan, then you know that interviews are a critical part of the application process. Interviews are a way for financers to ensure that you can pay back the amount you borrowed in full and on time.

Business loans work the same way. You need to go through an interview process to support your eligibility for the loan. Your goal is to prove the following:

  • Your business can make loan payments on time.
  • Your business has a clean track record of cash flow.
  • You, as an owner, have other assets to pay the loan if your business fails.

This might seem like a lot to prepare for a loan interview. But much like a job interview, the lending company needs to know if you fit the requirements and qualifications. 

Common Business Loan Application Interview Questions 

To help you out, here are some of the common questions asked when applying for a loan that can help you prepare for your interview.

1. How would you summarize your business?

If ever you’re asked this question, you simply have to know your business plan. So, make sure that you know your business like the back of your hand.

Interviews are a chance for you to elaborate on certain aspects of the business plan. The added details can boost your chances of being approved. However, you don’t have time to discuss your entire business plan, so ensure that your answers are like an elevator pitch, highlighting your business’s profitability and cash flow.

2. How will you use the money?

The financier wants to know how you’ll use the money to build your business. Telling them all the things you’ll buy or spend on won’t be enough to answer this question. Instead, justify all your purchases and explain how these will aid the growth of your business.

Lenders want you to assure them that you can pay back the loan. So, for example, if you’re going to use the money to expand your physical store, you can inform the lender that the expansion will give you the money to repay the loan. 

3. How will you repay the loan?

Aside from knowing how you’ll use the money, the loan officer’s interview questions would include how you plan on repaying the loan. Of course, you’ll be using the money for your business, so it only makes sense to pay them back with the profit you’ve made, not your net income.

Financers won’t bother granting your application if your business doesn’t seem all that profitable. This is why aside from discussing the profitability of your business, you should also talk about the other assets you have that can repay your debt in case your business goes sideways.

Consequently, your lender may also ask about your past business, tax returns, or outstanding debt that can affect your repayment. It may be difficult for you to evenly distribute payment for your loan debt and keep the business afloat. As such, you need to prepare an answer if you’re still repaying old debts.

4. How do you manage your accounts receivable and payable?

How do you manage what you owe to others and what others owe your business? Answering this will give your financers an idea of your business’s cash flow and the kind of companies you deal with.

5. What kinds of insurance do you have?

Insurances help cover the costs associated with whatever damage your business sustained. Without business insurance, owners may have to pay out-of-pocket. Being insured helps assure the lender that you have a safety net to protect it from financial crises and other unforeseen problems.

6. How do you explain any of your past business failures? 

Lenders want to know if you’ve had any financial hardship or failed businesses in the past. Prepare to explain these that might set off alarm bells for your lending company. They’ll evaluate what went wrong—if it was the business structure or the management. This is insurance on their part because they wouldn’t want to provide a huge sum of money to a business that has a history of repeated, similar failures.

7. Can you put up any collateral?

Collateral is something you pledge as a safety net for the loan if you cannot pay for it. This can be assets such as a house or inventory. If you don’t pay your loan, your lending company takes the collateral.

Tips to Ace Business Loan Interview

  • Know your business plan inside out

To help answer any question thrown at you, no matter how hard, know your business plan inside-out. Backing up your claims with figures and examples will help.

  • Accurately estimate the amount of capital you need

Don’t ask for too little or too much. The capital you ask for should match what you’re planning to do with your business. It would help to have estimates or quotes for the materials you need and an expenditure forecast of other areas you’ll need to spend on to inform your lender better.

  • Do your research on the lender

If you’ve chosen a lender, learn about the types of businesses they prefer. This will give you a glimpse of whether or not you’ll fit their requirements or not.

  • Have relevant documents on hand

It’s always good to be prepared. Get physical copies of relevant records as proof during your interview. This will help strengthen your argument for why you should land this loan. You never know when you’ll need to show your facts and figures to drive your points home.

Get Approved Today

Getting a loan application is difficult, but not impossible. Boost your chances by preparing for the interview and knowing the common loan questions and answers. If you’re a business owner looking for loan options with a simple process, consider online lending companies like JK Capital. With easy and quick applications, you get a seamless experience and immediate funding.

Apply for a business loan today!

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Business Loans

Pros and Cons of Collateral Loans for Your Business

Starting or expanding your business requires a significant amount of funds. Sometimes, your savings aren’t enough to cover the expenses needed. This is where loans can be of help. Business loans in the Philippines can tide you over when you need an extra financial boost.

However, applying for one may be difficult. Lenders see businesses as huge risks because of the possibility that the ventures might fail and go bankrupt. They can be very thorough with the approval process, causing some entrepreneurs to get denied. Other times, they increase the interest rate or require collateral.

Collateral loans are beneficial for start-ups and business owners with bad credit when borrowing money. But what is a collateral loan? And what are the advantages and disadvantages of applying for one? Read on to learn if a secured loan is the best financing option for your small business. 

What are Collateral Loans?

Collaterals are assets you pledge to the lender as long as your loan is active. When you take a collateral loan, you give the lender the rights to your assets, may it be a vehicle, real estate property, stocks, or equipment. Lenders take hold of your property as you use the borrowed money. If you default or fail to repay, they keep your collateral. 

Since lenders see businesses as high-risk investments, they use collateral to reduce their risks of losing money. From a lender’s perspective, the best types of collateral are assets that they can liquidate quickly or easily convert to cash. According to a 2021 Statista survey, the most common loan collaterals used in the Philippines are ATM accounts, land, harvest, vehicles, and real estate properties. 

The value of your collateral and how much you can loan will all depend on the lender. Once you propose collateral, the lender will determine the loan-to-value ratio by appraising your assets. For example, they’ll only allow you to borrow 80% of the appraised real estate value. 

Pros of Collateral Loans for Businesses

Here are the advantages of taking a secured business loan:

  • Easy to qualify for even with poor credit history

You can access financing even if you have a below-average credit history. Since lenders secure your loans with collateral, they’re more lenient on application requirements. Secured loans also allow you to build back your credit. With unsecured loans, it can take several months or years to rebuild your credit to qualify for a loan. 

  • Low interest rates

Compared to non-collateral loans, lenders usually see collateral loans as a less risky choice. Thus, they’re more willing to offer lower interest rates. If you have a good credit history, steady income, and valuable assets, you can leverage those by shopping around and looking for lenders with the lowest interest rates. 

  • Potentially high loan amount

Depending on the value of your collateral, lenders generally let you borrow a higher loan amount. Since they have the collateral as security, they have something to fall back on if you default on the loan. The more valuable and liquid your asset is, the more money lenders let you borrow. 

  • Greater flexibility

Lenders are more flexible with their financing options when you put up collateral. For example, they can provide longer terms because of the reduced risks, which means your monthly charges are lower.

How long can a secured business loan be paid? Some borrowers let you pay off the loan for several years, even reaching a “30 years to pay” agreement. 

Cons of Collateral Loans for Businesses

There aren’t a lot of disadvantages to a secured business loan, but here are its major cons:

  • The application process may be longer 

The application process for secured business loans may take longer than unsecured loans because the lenders need to appraise the value of your collateral. You also have to provide more information that stacks up to the steps of getting your loan funded. However, the actual speed of the process will depend on the lender—some can be faster than others. 

  • Possibility of losing property 

Since you transfer the property rights to the lender, you risk losing your assets. The lender repossesses your collateral when you fail to pay the minimum monthly charges on time. However, this is just if you can no longer make the payments. You won’t lose your collateral if you abide by the lender’s terms.

Easy Approval Process and Great Loan Terms

When borrowing money, you want the best possible rate. If your business has valuable assets that can serve as collateral, get a secured business loan for lower interest rates and more borrowing power—even if you have a poor credit history. Just make sure that the chances of you defaulting are slim to none to avoid losing your collateral.

If putting up collateral isn’t possible, you can always apply for unsecured loans. JK Capital offers fast and easy unsecured business loans. You also have the option to put up collateral to improve your loan terms. Check out your options and apply for a business loan today!

 

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Business Advice Business Loans Guides Small Business

How to Fund Your Small Business: SME Loans to Consider

Passion, grit, and patience are essential for entrepreneurs, but these aren’t enough to start a business. Of course, you need the skill to find financing to set your venture in motion.

Many small- and medium-sized enterprises (SMEs) tend to put together funding from various sources— for example, from friends and family. However, it’s easier to get funds from a single source, such as from a loan. This is where small business loans come in. It is a practical form of financing, especially since various loan types and financier options are available.

Of course, it’s essential to carefully research each loan type available to weigh your options and select the right one for your business and growth goals.

Where to Get a Business Loan

Read on to find out how to fund your small business fittingly by exploring the various loan types and where to get a business loan in the Philippines.

Government

As the name implies, government agencies provide this financing solution. The two primary agencies in the Philippines providing small business loans are the Small Business Corporation (SB Corp) and the Department of Trade and Industry (DTI).

To be eligible for this loan, you should be an active member of the government body you wish to avail of the loan from. This means you must be a registered and regular contributor. Contributing regularly also boosts your odds of getting approved for the application.

Pros:

  • Active members have good odds of getting approved for the loan application.
  • Payments are easy; they’re directly deducted from your salary every month.

Cons:

  • The application can be a lengthy process with a government agency.
  • While you can get interest- and collateral-free government loans, you will still be charged a service fee.

Bank

Many banks offer lending programs to support entrepreneurs, making them one of the primary business funding sources. Getting a bank loan entails paying interest to repay the bank for the loan. Philippine banks generally provide short- or long-term repayment terms, depending on your needs.

Pros:

  • Banks offer easy application and flexible payment terms and repayment plans.
  • You can utilize the loan as a step to unlock other financial privileges with the bank.

Cons:

  • Banks often have strict requirements and a lengthy application process.
  • Banks look into your credit line and credit standing.
  • They may require collateral for the amount borrowed.

Private

Private lenders can refer to individual investors or companies with investors that offer personal or business loans. Qualified firms can be preapproved based on a range of criteria. This funding option can benefit companies that wish to expand for higher profits.

Private financing institutions like JK Capital provide easy business loans in the Philippines to support the growth of local enterprises and boost the economy.

Pros:

  • Simpler requirements and application process.
  • Faster approval and turnaround time to receive the borrowed money.

Cons:

  • The loan may come with higher interest rates.
  • Some private lenders require a co-guarantor to be liable for the loan in case of missed payments.

Types of Business Loans in the Philippines

Now that you know where to get a business loan in the Philippines, it’s time to discuss the types of loan you can apply for. Most of these loans are offered by banks and private lenders, whereas government agencies typically provide traditional term loans.

Now that you know where to get a business loan in the Philippines, it’s time to discuss the types of loan you can apply for. Most of these loans are offered by banks and private lenders, whereas government agencies typically provide traditional term loans. 

1. Term Loans

Terms loans are offered in a lump sum and paid in monthly installments over a specified period. The monthly payment comes with a fixed interest rate for the loan span, making it easy to plan for. 

Traditional banks offer term loans, which can come with or without collateral. This loan type is ideal for financing the renovation or expansion of an existing business and additional funding for capital or acquiring equipment for growing production. 

2. Short-Term Loans

This type of loan is for businesses that need financial support short-term gaps, such as to finance business expenses for continued operations. Short-term loans are typically offered online and are payable in a year, depending on the lender. The process for short-term loans is fast and simple, but the interest rates run high.

3. Lines of Credit

Traditional banks offer lines of credit that allow entrepreneurs access to money whenever they need it, especially during urgent situations, so long as the money is within their credit limit. A line of credit works similarly with a credit card, where it replenishes when the balance is fully paid. 

Business owners who need a stable source of cash for tight financial situations can benefit most from this type of loan. But much like with term loans, banks are meticulous when approving lines of credit. 

4. Invoice Financing

Based on the name, this loan is only an option for businesses that invoice clients since lenders use your accounts receivables as security. This type of financing works by sending your invoice to a potential lender to advance cash in case of future invoice payments. It’s a reliable solution for short-term cash flow issues for small businesses. 

5. Merchant Cash Advance

For business owners who can’t meet the qualification requirements for other types of loans, merchant cash advance companies offer this commercial loan as a viable option. You receive a cash advance from the lender and pay it back from your business’s daily credit card sales. It’s a flexible payment solution with a short-term loan amount but comes with high fees and interest rates. 

6. Equipment Loans

Equipment loans are a financing option used for purchasing or leasing machinery or other equipment, such as a printing machine, restaurant equipment, or vehicle, essential for your business to operate and grow. The equipment you purchase can act as collateral for the loan, which means the lender can repossess it if you default on the loan. 

Get Your Business Off the Ground

Taking out a small business loan is a serious financial decision. With the many loan types and different institutions to get them from, it’s crucial to consider your options carefully before making the final call. A suitable financing solution can certainly help you meet your business goals. 

Don’t be afraid to get the financial support you need. Back your business up with the right financing option from the right financial partner. Apply for a business loan today with JK Capital, and let’s get your business running!