Financing

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). If you would like to learn more about AWE’s loan program, join us at our upcoming info session webinar on November 30th, 2018!

Can’t make the webinar? 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. 

Guest Blog: How Can Being a "Jill of All Trades” Relate to Financing?

Do you know that women account for 40% of all tool sales? Well, a good number of us get tired of waiting for someone else to do the work for us, according to Ann-Marie Campbell, a Home Depot Executive. "As women become more empowered," she said, "they come into Home Depot and say, Hey, I can do this. I don't need my husband or partner to do it for me…"

While moderating the lunchtime panel at the AWE Learning Day on February 22nd, I brought my home toolkit onto the stage to impress upon the 150+ business owners in attendance that just like the toolkit a contractor brings to your home to do their job, a financial toolkit is similarly required when it’s time to scale up your business.

Just like the multi-head screwdriver, measuring tape, hammer, nails and cordless electric drill that you keep in your basement or garage, what are the most-often requested components of a financial toolkit?

The application is the starting point and creates an overview of your business. At this stage funders want to know what product or service you provide, who owns the business, who you bank with, current financing in place, the amount you are requesting to finance and why.

Next, depending on whether you are seeking funds from a traditional source such as the bank, or from alternatives including angel investors, venture capital groups, grant providers or asset based lending/factoring organizations; the required document list will vary. Financial Statements are key and provide a picture of past performance; some financiers will request a business plan, cash flow projections and maybe your bank statements for the last 4 months.

Your accounts receivable aging, list of customers, inventory and equipment summary, as well as GST and payroll deductions status are possible ‘asks’. Market size, competitors, exit strategy, management team resumes, website address, social media accounts and a personal financial statement round out the list of possible requirements.

Phew! Are you exhausted just reading the list?!

Applying for financing may seem daunting and never-ending but in most cases it’s not. If your documents are up to date and you supply everything requested at the time you complete the application, most financiers will provide you with an answer quickly – e.g. equipment lease financing may take as little as 24 hours, factoring line 3-5 days, simple bank loan 5-10 days …

Financing involving grants, more complex debt and equity partners will take longer – be sure to ask how long the process is expected to take so that you don’t panic. Also, begin the process sooner rather than later and lastly, ask for help!

You know, I was thrilled with the number of women who raised their hands to let me know that ‘YES’ they own power tools! Ladies, it’s not that big of a stretch from power tools to financials – follow the instructions and you’ll be well on your way!

About the Author

 

Judy Perdomo  President, Liquid Capital Rockyview Inc.

Judy Perdomo
President, Liquid Capital Rockyview Inc.

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