Business owners find themselves needing additional funding to keep their doors open or pursue a business opportunity from time to time. Small business owners, especially start-ups, have long been estranged from the banks because traditional lenders have been known to reject small businesses. For them small businesses are high-risk because of their unstable cash flow, unestablished credit background, or their lack of collateral.
On the other hand, alternative lenders allow business owners to get a business loan for fast approval without having to require entrepreneurs to submit a long list of paperwork.
However, with the number of alternative lenders available out there, how will you choose the right one that will meet your needs and objectives? Here are five tips to keep in mind when shopping for the best business lender:
- Are they reputable?
Before applying for a loan from a particular lender, be sure to check if they’re trustworthy and can follow through with their promises. Essentially, you’ll want to work with a financing company that has their customer’s best interest in mind.
You can quickly gauge a creditor’s reputation by:
- Checking online reviews. If the bank has a website, go check it out. Try to see if they have a dedicated section for client testimonials and read what their previous clients say about them. You can also do a quick search on Google and find lists of websites that offer reviews for the lending company you’re considering.
- Asking around. If someone you know, a friend or relative who has worked with a particular lender before, ask them about it. You’ll want to see if they had a good experience with the company before. If they need financing in the future, would they work with the same lender again? If the answer is yes, then the lender is probably worth considering.
- See what types of loans the lender offers
If you’ve been in business long enough, you probably know that there are many business loans available for every business need. As you shop for the right lender, consider your company’s current needs. Do you need more capital for product expansion, new equipment, or day-to-day expenses? Be sure that the lender can meet your business’ current needs.
Among the most common types of business loans are business lines of credit, equipment financing, and invoice financing.
- A business line of credit (LOC) is a type of revolving credit. It allows businesses to take the amount they need when they need it as long as they don’t exceed the pre-set credit limit, usually around $1,000 to $10,000. For businesses looking for easy access to cash to address pressing needs (broken equipment, inventory top-ups, or day-to-day expenses), a business line of credit would be a viable choice.
- Equipment financing provided by lenders helps fund any equipment that is vital for your business’ operations. In this arrangement, the equipment will serve as the collateral for the loan. This means that if you fail to make the required repayments, the lenders can seize your equipment as payment for the loan balance.
- In invoice financing, the financing company basically buys your invoices from you. If you’re having cash flow problems because of your account receivables, this is a viable financing option to apply for as it helps free up cash tied up in those outstanding invoices.
Again, if they have a website, it’s a good idea to check it out. Other lenders may also include a pre-qualification form on their website that lets you know which loans you’re eligible for based on your creditworthiness and needs.
- Compare loan terms
It can be tempting to sign with the first lender you encounter but don’t do it. Taking out a loan is a big deal for every business. That said, you want to make sure that you’re getting the best deal out there. As much as possible, collect as much information you need from every lender and compare them.
While reviewing the offers, look at the interest rates, payment periods, repayment amounts, and the loan’s terms and conditions. Try to check if they have prepayment penalties, too, should you decide to pay off your loan earlier. Identify your top three lenders and start negotiating to sweeten the deal even further. Ultimately, the lender who’s willing to offer the most flexible terms should be the best choice.
- Consider how fast the lender can approve the loan
The amount of time it takes from application to approval of business loans can vary on the lender. Therefore, you have to consider the urgency of the business loan. If you’re not in a rush and you have a good credit standing as well as stable cash flow, applying for an SBA loan or term loans might be a better choice. The entire process of loan application could take up to 30 to 90 days.
However, if you need additional cash to bridge cash flow gaps or address unforeseen expenses (i.e., broken equipment, property damages), you certainly don’t have the luxury to wait a few months for loan approval. In that case, you might want to apply from online lenders. Some can approve you of the loan within days after you submit your application.
Choose the Best Lender for Your Business
Small business owners often find the loan application process daunting, especially if they’re applying for a business loan for fast approval. However, finding the right business loan provided can make all the difference and make the process a bit bearable.
When shopping for the best lender in the market, make it easy on yourself and keep the tips mentioned above in mind. Although it may take a long time, your efforts will pay off once you find the right fit that offers the best deal.