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When obtaining a business loan from a bank or NBFC, many borrowers get trapped in the cycle of rejections and hidden charges. To avoid being misled and choose the right business loan offer, it is important to be vocal and ask the right questions to the lender.

This article will explain a few questions that you should ask lenders to take an informed decision. Also, having sufficient information about the loan scheme can help you avoid rejections and disappointments.

10 questions to ask before obtaining a business loan

Here is a list of questions you should ask the lender.

1. Do you offer a business loan for my industry?

This is an important question. Many banks and NBFCs have specialized loan schemes for a specific industry such as loans for the travel industry, loans for professionals, loans for the medical equipment industry and so on. Since these schemes are specially designed for the particular industry, it serves better. Alternatively, a few generic loan schemes have exception industries. For example, many loan schemes are not applicable to an agriculture-related business but there are separate agricultural loans for the sector. Likewise, if the industry you operate in is not catered by the lending institute, your loan will be rejected.

You can state the purpose of obtaining a loan and ask the official about their recommendation for a loan. If they are offering more than one option, you can ask about the pros and cons of each option. For example, you can opt for a loan scheme designed for women entrepreneurs while you can also opt for a working capital loan scheme offered by the bank. However, a loan scheme for women entrepreneurs may come with a lesser interest rate and hence turns out to be advantageous for you.

3. What is the interest rate?

The rate of interest on the business loan is a crucial factor. It has a direct impact on EMI you will be paying. Therefore, it is best to be informed about the rate of interest. Also, when you are aware of the rate of interest offered by lenders, it is easier for you to make a comparison and choose the suitable option for your business.

4. Is there any way to reduce the rate of interest?

You can try and negotiate the rate of interest by asking if there is any way to reduce it. If you meet certain eligibility criteria and bank categories you as a low-risk borrower, you may be able to get a loan at a better interest rate. Also, some banks or NBFCs offer different rates of interest for online and offline loan applications. Therefore, you need to ask if online loan applications will attract a lower rate of interest.

5. What are the eligibility criteria and required documents?

You must ask about the eligibility criteria and documentation required for the business loan scheme that you are considering. While KYC documents remain the same, some documents may vary depending on the loan scheme. For example, some banks ask for a project report. You need to collate all the documents to avoid loan rejection.

6. What is the loan repayment schedule?

It is important to understand the loan repayment schedule. Most banks offer loan repayment in the EMI method. However, a few lending institutes also offer flexible payment methods. Therefore, it is best to learn about it. You should also ask if the lender charges any fees in case of foreclosing the loan.

7. What will be my EMI and monthly due date?

While your loan is at the processing stage, do not forget to ask the bank officer about the exact amount of EMI that you will have to pay every month and also about the due date.

8. What are the processing fees and other charges?

This is one of the most crucial aspects of obtaining a loan. Many borrowers feel cheated because they were not informed about certain expenses beforehand. Here is a list of charges/fees/funds you may have to arrange.

Business Loan
  • Processing fee
  • Documents handling charges
  • Margin money
  • Franking charges

It is best to have information on all the necessary expenses that you may have to bear before taking a loan.

9. How long does it take to process the loan?

This is also one of the important questions. Some banks approve loans quickly while others may take time. For example, HDFC Bank business loans, ICICI Bank business loans, etc., are are usually quickly approved. Alternatively, you can also check with the bank officer whether the online application would be processed faster than an offline application.

10. Any specific terms and conditions of the loan I should be aware of?

Although a business loan agreement will be given for your perusal, it is a good idea to ask the bank official about any specific terms and conditions.

Concluding note: Why is it important to ask questions to the lender?

Here are some of the reasons why it makes sense to ask questions to the lender before obtaining a business loan.

  • Having information about the loan scheme can help you to take an informed decision.
  • Knowing about interest rates and tenure can help you calculate your EMI.
  • Knowing about crucial aspects such as rate of interest, loan tenure, processing charges and so on helps in comparing different loan schemes and offers.
  • Having answers to questions about margin money, processing charges, etc., helps in being financially ready to bear these costs.
  • Having answers about processing time can help you to be prepared to wait for the said period.
  • Asking questions and seeking answers also reflects your interest and seriousness in obtaining the business loan and can give confidence to the official to approve the same.

In all, asking questions and getting satisfactory answers to them can strengthen your relationship with the lender. It further helps in making the loan process hassle-free and convenient for both parties.

Swati Deshpande

Swati is a passionate content writer with more than 10 years of experience crafting content for the business and manufacturing sectors, and helping MSMEs (Micro, Small and Medium Enterprises) navigate complexities in steel procurement, and business services. Her clear and informative writing empowers MSMEs to make informed decisions and thrive in the competitive landscape.