7 Questions Lenders Ask During a Business Loan Application

Apr 25, 2022 | BLOG

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!