4 Questions to Ask Before Applying for a Small Business Loan

August 23, 2022

When researchers at UNLV’s Center for Business and Economic Research looked at national and regional economic data recently, they found that Southern Nevada is holding its own against the background of national ups and downs. Despite some uncertainty in the national picture, the study forecast Nevada’s year-over-year growth rates at 1.7% for 2022 and 2.5% for 2023. Entrepreneurs and small businesses are a crucial part of this positive regional growth. 

If you’re a Southern Nevada small business owner, you may be wondering how to make the most of the current cycle of growth and recovery while preparing for any bumps in the road ahead. When it comes to maintaining positive economic momentum, financing at the right time can make all the difference. Your banker can help you navigate your options.

You may wish to consider applying for a loan at some point in the life of your business. Perhaps you have unexpected expenses, need cash flow or want to purchase new equipment. Before approaching lenders, it’s helpful to have a clear understanding of your needs. 

Here are some questions to help you decide whether applying for a small business loan is a good option for you right now.    

What type of loan is best for my business?

When researching your loan options, you may turn up some you didn’t know you had. Are you facing unexpected costs? The flexibility of a revolving line of credit might suit your situation best. Is it time to invest in new equipment? Equipment term loans could provide a solution. Expanding to a new location or adding real estate to your asset portfolio? You may want to consider a commercial real estate loan.  For startup costs, Small Business Administration (SBA) lending programs like SBA 504 or 7(a) could be the way to go.

Am I prepared to provide all the documentation lenders need? 

Banks mitigate risk by thoroughly evaluating your business and its needs. To do that, your lender will want to see various documentation when considering you for a loan. Before you approach lenders, consider making a checklist, or ask your banker to provide you with one. This can make it simpler to assemble everything you need beforehand. Relevant information may include your business plan, any pertinent licenses in your city or region, tax and payroll documents, personal and business bank statements and profit-and-loss statements. 

How will I use the money? And how will I pay it back? 

Many would-be borrowers don’t think to ask themselves these two simple yet crucial questions. Before applying for a loan, it’s a good idea to formulate a clear and detailed answer. Will a small business loan drive revenue growth? Your banker may want to have an estimate of how much. Looking to reach new customers? It’s useful to try to set a goal for how many. Demonstrating that you have a plan to use your loan wisely and repay it on time may help you secure the funds you need.

What kinds of terms work best for my situation? 

Here’s a simple rule of thumb: Use short-term money for short-term purposes and long-term money for long-term purposes. Short-term financing — which typically comes due within six months to a year — could include a bridge loan to cover operational expenses or meet immediate obligations. Long-term funds —a financial instrument with a maturity of one year or more — can better serve to purchase fixed assets or equipment or invest in R&D or expansion. Understanding the appropriate use of credit might help you think through variables such as the length of the loan and repayment terms. It’s a good idea to evaluate your long-term plan and short-term needs and determine where financing fits into that overall picture.

Whatever your goals for your Southern Nevada business, a loan might be one way to make them a reality. To learn more about how we can help, contact your Bank of Nevada relationship manager.