Do lenders typically require business owners to specify the intent for loan usage?

Lenders typically require business owners to specify the intent for loan usage because understanding the purpose of the loan helps assess the risk associated with lending. When borrowers indicate how they plan to use the funds—such as for purchasing equipment, expanding operations, or covering operational expenses—lenders can evaluate whether the investment will generate sufficient revenue to repay the loan. This information allows lenders to make more informed decisions and potentially tailor loan terms to fit the specific needs and circumstances of the business.

By specifying the loan's intent, borrowers also demonstrate a clear business plan, which enhances their credibility and increases the likelihood of securing financing. This requirement is a standard practice in the lending industry to foster transparency and accountability.