| 1. |
What are the estimated costs that I am responsible for,
including legal fees, in order to close the loan? This could vary enormously. Some lenders have standard
documents and in-house counsel to make the cost of the
service nominal or even free. Others will require you to pay
for their lawyers to draw the documents. And as you will
want your lawyers to review all documents before you sign,
you could be in for a double whammy. Ask potential lenders
to be specific about when and where legal fees will occur. |
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| 2. |
Once we close the loan what are all the costs, fees, and
charges I will incur in order to use the line of credit? Most people know to ask about interest rates. But your cost
does not end there. There are field exams (how many per
year and what is the cost per exam? Is this open ended or
will the lender put a cap on this cost?), management fees,
administration fees, reporting fees and more. Some lenders
will even charge for online access to your account. Ask for
a complete list of all charges, including fees accrued if you
don’t fully use the line. |
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| 3. |
How exactly do you calculate the interest? Please provide
an example. You have been quoted 2% above prime rate. Whose prime?
Some institutions have their own prime which may be greater
than you expect. Interest is based on a 360 day year but
there are usually float days (the number of days from when
funds are paid into your account until you are credited with
the funds). Ask how many float days you will have - are
those “days” or “business days?” When the lender presents
an example, pay close attention to the total cost/benefit
comparison vs. only the interest rate comparison. |
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| 4. |
After the loan closes, who will I work with on a regular
basis? A good relationship with your lender can make all the
difference in your company’s growth. You will spend much
time with your lender’s representative and will start to
understand what they expect of you while they learn about
your business. Many lenders have salespeople who will pass
you on to another representative once the loan is approved
and you will have to start building that important relationship
with someone new. And the salesperson may have made
promises the new rep knows nothing about. To avoid
such miscommunications, meet with the new rep as soon
beforehand and be prepared to educate the new team. |
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| 5. |
Once I provide you with all the information you need,
when can we close on the loan? Some lenders have credit committees who meet formally at
certain intervals, possibly weekly or even monthly. And while
you may be scheduled for this month’s meeting, if they run
over time, you may have to wait another month. If time is
critical, you’ll want to know this early on. |
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| 6. |
What will you do to gain a true understanding of my
business and my financial needs? Business is dynamic. Your lender stays informed only
through the information you provide or the knowledge
they seek out - and monthly information is never enough!
Your lender should meet with you regularly at your place of
business to keep you both informed and ready your next big
financial decisions. Try not to see this as an intrusion but as
due diligence that will help both companies. The better your
lender knows your business, the better they can meet your
ever-changing needs. |
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| 7. |
Do I have to wait a whole year to obtain a line increase if
business warrants it? You shouldn’t have to. While all lenders will need a period of
time to get comfortable with your business, some will require
at least a year before extending a line increase. If you are in
a growth phase, you could be jeopardizing your growth with
the wrong lender. |
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| 8. |
How quickly can you react to a request for a credit line
increase? As your lender gets to know you, their response time should
shorten. But if you are with one of those once-a-month credit
committee types (see question 5), you could be stuck. Make
sure your lender has short lines of communication within
their company to get you that rapid approval when you need
it most. |
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| 9. |
If I encounter temporary or seasonal cash flow issues, how
will this affect my line? This should never be a problem for an informed and educated
lender. If you know that you will encounter cash flow issues,
tell your lender up front so that they can tailor a credit line
that will work for your business. If the cash flow issue arises
unexpectedly, talk to your lender at the earliest opportunity.
It is never too soon to tell your lender about changes in your
business. |
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| 10. |
What if my business runs into trouble? All lenders will say they will work with you. But ask them to
be specific and talk through examples of what a tough time
for your business will mean to your finances. Some lenders
will simply react and protect themselves by lowering advance
rates and creating reserves - both of which will limit their risk
and exacerbate your situation. Smart lenders who understand
your business and are aware of the possible problems up front
should get you the help you need. |
