Define the purpose and the repayment source
Write what the funds will pay for, when the benefit is expected, and how cash will repay the debt. Separate a short-term collection gap from a recurring operating loss. Gather current financial statements, existing debt schedules, and a conservative cash forecast. Financing can bridge timing, but repeated borrowing without fixing an unprofitable model can increase the pressure on future cash.
Compare the complete terms
Request the interest calculation, fees, payment schedule, variable-rate terms, collateral, personal guarantees, prepayment provisions, covenants, and default terms. Compare offers over the same period and funding amount. Ask qualified legal or financial support about terms you do not understand. A low advertised payment can conceal a long repayment period, a later balloon amount, or restrictions that matter more than the headline rate.
Test the payment under downside conditions
Model slower collections, lower sales, higher costs, and interest changes where relevant. Confirm that payroll, taxes, essential operations, and the debt payment remain visible in the forecast. Keep loan proceeds, principal, interest, and fees distinct in the books; ask the preparer about proper tax treatment. After signing, track covenant deadlines and reconcile the loan schedule with lender statements.
- State the funding purpose and the source of repayment.
- Compare total fees, terms, security, and guarantees.
- Test repayment under a realistic weaker operating scenario.
- Calendar reporting requirements and review loan balances monthly.
Questions to consider
Are loan proceeds the same as revenue?
Borrowing and customer sales represent different transactions and should be recorded distinctly. Have the accountant confirm the entries and any special circumstances.
Does a lender’s approval prove the loan is affordable?
No. The owner still needs an independent view of repayment capacity, risks, guarantees, and alternatives. Approval is one part of the decision rather than a substitute for it.
Official sources and further reading
Use this guide to prepare questions and organize records. It does not determine eligibility, establish a professional engagement or guarantee a tax or business outcome.