Around 43% of small businesses from 2018 to 2019 applied for additional financing. Almost half of these applied through a traditional large bank, while the rest applied through alternative lenders.
Small or not, how does a business choose which lender to go for?
Taking out a loan is a huge deal, so you have to consider a lot of factors before deciding on a lender. Don’t worry, we’ll help you with that. Keep on reading to see how to find the right business loan lender for you.
1. Assess Your Needs
To find the best lender for your needs, you must first assess what those needs are. What type of financing are you looking for?
If you’re looking to buy new equipment for your business, then you can consider taking out an equipment loan. Short-term loans are also available. An example is a working capital loan to keep the lights on while you’re working to get more revenue.
A line of credit works when your business is more unpredictable or if you need constant access to funds. It’s like a huge credit card wherein you have access to a certain amount of funding. But, you don’t have to pay for what you don’t use.
There are other loan options, so you should be able to find one that applies to you.
See how much money you need to borrow, too. Some lenders have an upper limit to how much you can take out, while others specialize in bigger loans. Look for business lenders that can accommodate you.
2. Widen Your Search
When looking for a lender, the default option for most people is going to the bank. This isn’t a bad idea at all, as it provides security and familiarity. From the customer’s perspective, banks pose fewer risks than alternative solutions.
However, banks have a low acceptance rate because they don’t like taking risks. They have a high standard for borrowers. If you don’t have an excellent credit score and plenty of collaterals, you might not stand a chance.
The bureaucracy makes the process longer than it should be, as well. You’ll have no choice but to wait even if you need the money right away.
Alternative lenders, on the other hand, are much more flexible. They may need fewer documents from you and they can process your application faster.
3. Ensure the Lender’s Credentials
If you’re looking for alternative lending options, their credentials are going to be a huge issue. Not everyone willing to lend your business some money is trustworthy.
The lending company must have the proper accreditations and credentials. Look for these to avoid loan scams.
First, check their website and see if you can find this information there. Incomplete details on a website aren’t only frustrating, but a little suspicious, too. Still, we can give them the benefit of the doubt and think that they only have a bad website designer (which shouldn’t be the case for reputable companies, by the way).
Try and shoot them an email. They should be willing to present these without much hassle. If they aren’t, then that’s more than a little suspicious.
You should also be able to find them in directories. A quick Google search should also allow you to see if they’ve won any awards and such that would make them reputable.
Check out their Better Business Bureau (BBB) rating, too. A reputable company should have an “A” rating. Anything other than that, proceed with caution.
4. Research Your Lender
Every lender will do some level of background research to verify your information and assess your risk level. This is something you should be doing, too, not only with lenders but to other businesses you have to deal with.
Research every lender and see if you can find references of reviews about them. This also makes you aware of any risk you’d be taking by getting a loan from them.
Keep in mind that you’ll get various perspectives given that each situation is unique. You’ll have to sift through the feedback to find some that might apply to you. You’ll also have to use your good judgment to make informed decisions.
However, if the reviews are overwhelmingly negative, then there’s no need to deliberate more. That’s already a huge sign you should instead look for other options.
If it’s the other way around, then you can rest assured that you’ll be in the hands of a good company. Sometimes, this is more important to consider rather than interest rates.
5. Judge Their Customer Service
One of the marks of a good company is its level of customer service. Their representatives should be courteous, knowledgeable, and professional.
They should be able to explain their products and services to you in a way you’ll understand. Should you have any questions, they should be able to answer those, as well.
Applying for business funding is already stressful. You shouldn’t have to deal with lousy customer service or rude representatives on that of that.
Also, they should provide more than one or two communication channels. What are the ways you can reach them?
They should at least have a phone number and an email. See if you can also reach them via chat, their social media account(s), and other options. Some lenders don’t have a physical location you can go to as they operate online, but that alone doesn’t raise a red flag.
What raises a red flag is if they don’t have clear communication channels. You should always be able to reach them for issues ranging from questions about your application to disputes about charges.
6. Compare Different Lenders
Take the time to compare different lenders, as well.
Compare their interest rates, fees, loan terms. and so on. You should also look at the loan features and benefits to find the best value. Always consider the folks at Loanpal, for example.
However, keep in mind that what looks good on paper won’t necessarily work out better for you. You have yet to see which one works out better for you based on your situation.
One might have a fast application process, for example, but have higher rates. The other might have the lowest interest rate, yet it takes a while to get approved.
Say you need the money ASAP — the first one would make more sense to you. If you’re willing to wait a bit longer, then you might be able to find a compromise – one with lower interest rates but that takes a little longer.
Compare the experiences of their customers, as well. Get first-hand accounts of anyone who has ever tried their services, and if you can’t, look online for reviews. As usual, use your discernment to see valuable and legitimate feedback.
7. Ask About the Application Process
Time is money, and when you’re experiencing a cash shortage, you don’t have the luxury to wait around for funding. That’s why you should be looking for lenders who move fast.
Like we said earlier, you have to deal with a lot of bureaucracy when dealing with banks. There’s too much paperwork, and then they have to decide on your application for weeks – sometimes, even for more than a month.
Although they have lower interest rates, they’re not the best option for when you need fast funding.
Alternative lenders can deliver your loan amount in as little as 24 hours or a few days. You can even get same-day approval in some lenders. Of course, this depends on the lender and the amount you need.
You should also ask the lender about their approval rates. This will give you a good idea of how easy or hard it is to get a loan from them.
8. Look for Flexibility and Transparency
The ability to schedule your payment based on your cash flow is an important consideration. Some lenders offer flexible payments and scheduled due dates for that reason.
Some even offer deferred payments, which allows you to plan around your slow season. This makes it easier for small and large businesses alike to plan their payments.
A business loan lender might also be willing to accept prepayments without a penalty. Should you wish to pay off your loan early, you can do so without paying for other fees.
Flexibility might also apply outside of payment options. Some lenders have restrictions on what you can use the fund for. Others may not have the same limitations.
Another thing to look for in a reputable business lender is transparency. All the fees and costs of loans you have to pay for should be transparent.
Not only should they publish the fees in written form, but they should also make sure you’re aware of them. Every detail, from the loan terms to the prepayment options, should be clear to both sides.
Find the Best Business Loan Lender for You
Taking out a loan isn’t an easy process. Look for a company that can give you a helping hand throughout the process. That’s how you know you’re dealing with a good company.
Take to heart our tips above so you can find the best business loan lender for you. For other tips, don’t hesitate to check out more from our other financial guides right here, today.