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Starting a business involves not just hard work but also sound capital. Most MSMEs depend on loans to finance their business either from banks and financial institutions or traditional lenders. Securing a business loan involves a process, that includes loan questions and answers your lender will ask before sanctioning your business loan.

This article will highlight the common business loan questions lenders will ask you before giving you a loan offer. These will help lenders to determine your loan eligibility and if you qualify for a business loan. While the questions are standard, the answers to the same may vary depending on your business and the lender you have approached.

How to secure a small business loan?

  • Have a business plan
  • Justify your loan requirement
  • Plan your repayment
  • Find your ideal lender

What are the 10 common questions lenders ask for small business loans?

Here are some of the questions loan officers ask before sanctioning a business loan:

1. Why do you need a loan?

This is one of the first question that lenders will ask you when you apply for a business loan. Basically, they want to understand the purpose of the loan – in order to determine whether the funds will be maximized, to know the terms and rates for the loan, etc.

Again, there are certain loans that come with restrictions – that you can use it only for certain purposes like working capital, inventory or equipment purchases.

If you are uncertain as to how you would use the loan proceeds, the bank will help you choose the loan that best fits your requirement. It is important for you to know beforehand how you are going to use the money to ease the borrowing process.

2. What is the nature of your business?

The nature of your business helps lenders to determine the exact loan you need.

For example, if you are looking for a business loan to invest in equipment, lenders will recommend a term loan or equipment/machinery loan. If it is working capital that you want for expansion, a line of credit works better or a working capital loan.

Moreover, the nature of your business has a direct relation to the collateral the lenders will require. When you are asked about the nature of your business, it is important to provide a straightforward answer – be ready with a clear and concise explanation of your business goals and how the loan will help to achieve them.

3. How much money do you need?

Another bank loan question that lenders ask is how much money you need. Some of the reasons behind it include:

  • An assurance that you are borrowing enough to cover your requirement
  • To ascertain you have a clear idea of how you will use the funds
  • To ensure that you are not asking for more than what you can repay

This question is also a study of your financial literacy. If you cannot justify well the reason of seeking a loan and the amount you want, it is an indication that you are not ready for the loan. If you want to get your loan sanctioned, prepare ahead to explain why you need the loan and how you plan to use the funds. There are strict consequences of non-repayment of loan EMIs – so banks will ensure you are prepared to borrow and repay.

Business Loan

4. How long have you been in business?

Lenders often ask this question to gauge the stability of your business as the longer you are in a business, the more likely it is that you are successful. If yours is a new business, lenders require more information as sufficient credit history will not be available to determine your creditworthiness. Moreover, they would ask for collateral to reduce their risks.

5. Where will your business be in the next five years?

Future goals enable the lender to check if you are serious about your business and your ability to repay the loan. Have a comprehensive business plan ready when you apply for a loan as it can make a difference in getting approved for financing.  It can also provide the lender with insights into the potential risks and challenges linked to your business and to assess whether your business is a good fit for their loan products.

6. Tell us about your business ownership?

Some lenders would want to know about the ownership of your business – whether it is a sole proprietorship business, partnership business, or a company. You may also be asked about the ownership of the business property whether it is owned or rented. Prepare your documents and carry proofs to validate your answers regarding your ownership claim.

7. What is your CIBIL score?

CIBIL Score refers to the credit score that authenticates your eligibility for a business loan. A good CIBIL score offers you a good chance to secure a loan while a negative CIBIL score may not work in your favour to get a business loan. Skipped EMIs, irregular repayment history, etc. are usual factors that impact your CIBIL score.

8. Do you have an any existing loan?

The amount of your existing loan will also determine the loan amount you are eligible for. Lenders will ask you about any existing loan that you may have – be it a personal or a home loan to determine the maximum business loan that you can take from the bank.

9. Are you looking at secured loans or unsecured loans?

This question could be asked by the lender once you have proven your eligibility to take a business loan. Depending on your needs and availability of collateral, you will have to inform the lender whether you want a secured business loan or a business loan without collateral.

Though at times difficult, there are several benefits of loans with collateral for SMEs. For example, you may be aware that the loan amount in a secured business loan is higher than an unsecured business loan.

10. What is the tenure of the loan?

Another question most lenders will ask you is the tenure of the loan or the time period for which you plan to take the loan. You can decide the tenure of your business loan based on your repaying power.  You need to take into consideration the interest rates for each payment option – monthly, quarterly, annually – and plan accordingly.

To sum up: How to prepare for a business loan interview?

As a business owner, you might need to consider a loan for any business advancement – be it business expansion, buying new equipment or investment. Since getting a loan will play a significant role in the success of your business, it is essential that you prepare well to negotiate for the business loan. You should ready yourself with the business loan questions and answers that are asked by the lenders to check your eligibility.

In case you need assistance to decide and apply for a business loan, you can reach out to Tata nexarc business loans that offers attractive unsecured loans from leading banks and financial institutions in India. You do not need to visit multiple banks to find the lowest interest rates, repayment and EMI options. You can also compare the rates of various lenders and find the right option for your emerging business on the Tata nexarc platform.



Aditi Bhattacharjee

Aditi is a seasoned content writer with 8 years of experience crafting content for the Tech-driven businesses, and helping them in understanding the complexities in Saas-bases business growth. Her informative writing empowers companies to scale the product better and grow in this landscape.