6 Things to Ask When Getting a Loan

You’ve written your business plan, you’ve done your research, and you’ve decided that your business is ready for financing. You are on your way to starting or expanding your business! This is an exciting time, but it is important to do your due diligence when deciding what type of lender is the best fit for you.

There are a numerous options out there when it comes to financing your business, and it is important to ask the right questions before you get too far along in the process. We have compiled a list of six key questions that you should ask when inquiring about a business loan.

1. Am I eligible?

Before you can decide if a lender is right for you, you first find out if you meet their basic requirements for eligibility. At AWE we have the following basic requirements for our loan program:

  • At least 51% of the business must be owned and operated by a  woman (or women)

  • You reside in the province of Alberta

  • Minimum credit score of 650

  • You contribute a minimum or have contributed a minimum of 25% owner equity on total project costs

  • You contribute a minimum of 30% security on the loan. This amount differs depending on the size, risk, and purpose of the loan. The loan may require up to 100% security.

Every lender is different, so be sure to ask them what their minimum criteria is. Just because you meet the basic criteria, does not necessarily mean you will get the loan (at AWE our lending decisions are strongly tied to our assessment of the viability of the business), but it will give you an idea as to whether or not you should invest your time in the application process.

2. What is the interest rate?

Not only do interest rates vary depending on the lending institution, but they can also differ based on the type of business (e.g. a start-up vs. business expansion). At AWE, our interest rate is the same for all our loan clients. Our interest rate is Prime +3%, and that rate stays constant throughout your repayment term. This means that even if the Prime rate changes during your loan term, you’ll continue to pay the same interest rate as initially agreed upon for the term.

3. What are the repayment options?

How long are the loan terms? Can you pay out at any time? At AWE our loan terms are up to 5 years, and we offer flexible repayment options. There is no penalty fee if you decide to pay out your loan early. This is not the case with every lender, so it’s important to ask about the repayment options before you go ahead with an application.

4. What fees are involved?

Nothing is worse than being surprised by fees you were not expecting. Ask about application fees, as well as loan administration fees, annual fees, or any other fees that could be associated with your loan.

For AWE’s loan program, there is a $100 loan application fee. There is also a loan administration fee of 1% of the amount loaned (up to a maximum of $500).

5. What limitations are there on how I use the money?

There will almost always be restrictions on what expenses can financed. AWE cannot finance:

  • Owner’s salary

  • Re-financing existing debt

  • Commission-based businesses, independent agents, or commissioned salespersons

  • Pyramid-based businesses including network or multi-level marketing programs

  • Franchise fees

  • Speculative ventures (i.e. Purchase of land for resale, unpublished books, etc.)

  • Business purchases that are solely share purchases

  • Intangible goodwill (i.e. business name or reputation)

  • Research and development

  • Purchase of stocks, shares, or other non-productive investment

Once again, restrictions will vary based on the lender so ask up-front what they can and cannot finance.

6. What other support do you provide for entrepreneurs beyond financing?

Depending on the lending institution, they may or may not offer additional supports for entrepreneurs. AWE has many programs and services to help business owners, including free business advising and various training opportunities. We are happy to say that many of our loan clients have had a long-term relationship with AWE – whether it be through advising, peer mentorship, or participating in training seminars.

This list is not exhaustive, and you will likely have many questions during the loan process (and the lender will have questions about you).

Connect with an AWE Business Advisor to learn more about our loan program requirements and discuss if it is the right financing option for you.