With the economy on an upswing, there are more small businesses than ever seeking funds to grow, hire employees, consolidate high interest debt, and more. However, there are also many more lender choices than ever before. Choosing the right small business lender is an important decision that may impact the success of your business.
So how should the financially savvy business owner choose a lender that’s a good fit? Here are some considerations:
Type of Lender
There are multiple types of lenders to consider, including traditional banks, online lenders, credit unions, and alternative lenders. All offer pros and cons.
- Traditional banks offer stability and a wide range of services. However, they may have stricter lending criteria and longer application processes.
- Online lenders offer faster applications and more lenient eligibility. They may be a good option if you need funding fast.
- Credit unions are nonprofit financial institutions that can offer competitive rates. You must become a member to access their services and rates.
- Alternative lenders offer unique funding options including peer-to-peer lending platforms and crowdfunding platforms.
Loan options, eligibility, and applications
Different lenders offer different types of loans, including term loans, lines of credit, equipment loans, SBA loans, and more. If you are unsure of what kind of loan may be best for your business, here is a helpful article to compare term loans, lines of credit, and SBA loans.
Eligibility criteria may also vary depending on the lender and type of loan. Check if your business meets the lender’s credit and collateral requirements before applying.
Evaluate the ease and speed of the application process across lenders. Online lenders may provide quicker applications and approvals compared to traditional banks.
Lenders should disclose an annualized interest rate or APR in an easy-to-understand manner. Although APR is widely recognized as the standard for loan cost, consider using the “Loan Constant” to discover the true cost of a loan. Learn more about the loan constant. While shopping for a lender, be sure to compare interest rates.
No surprise fees
When researching loans, don’t forget about additional packaging or other types of fees. Lenders should clearly state the fees that will be due before a loan is funded and during the life of a loan. Review all your terms and conditions and compare fees from various lenders to avoid surprises.
If borrowers don’t completely understand the fine print, they may get trapped in a high-cost loan with payments that may be difficult to manage. Some lenders even require daily payments. Information that should be easy-to-understand includes the total loan amount, the payment amount and frequency, collateral requirements, and any prepayment penalties. Read Business and Finance Terms for Small Business Owners for a quick and easy glossary of small business lending terms.
Customer service and access
Good customer service may be a boon to busy small business owners, especially if you have questions or concerns during the application process or as you access your loan. Read reviews and ask for recommendations from other small business owners. Look for a lender that understands your business’s unique needs and is willing to help work with you if unexpected challenges arise.
It may be worthwhile to consider if you would prefer to work with a local or national lender. A local lender may understand your business landscape better, but a national lender may have access to broader resources. Some lenders also specialize in certain industries, which may be advantageous.
Access to your lender is also an important factor. Is there a quick and easy way to reach their team? If you’re working with an online lender, can you pick up the phone for any questions or concerns? When you call, you should have a dedicated representative that is familiar with your business and your application. An unresponsive lender could be a red flag.
Consider an SBA loan
The Small Business Administration (SBA) offers loans designed to meet the financing needs for a wide range of business types. The government isn’t directly lending small businesses money. Instead, the SBA sets guidelines for loans made by its partners. SBA loans have some of the lowest interest rates and longest terms available for business financing.
Ready to learn more? SmartBiz® is here to help you get started. Our online lending network matches you with the right bank or lending partner to fit your needs, and our experienced financial professionals are with you every step of the way. See if you pre-qualify for up to $500,000 within five minutes with our one, streamlined application.