10 Factors to Consider When Choosing a Business Loan Provider

choosing small business loan provider sba lender

Every year, more than 627,000 small businesses open their doors for the first time in thousands of different industries. Though they work in different fields, those businesses all have something in common: they’ll eventually need to apply for loans to help the company reach its fullest potential. 

For most business owners, the hardest part of the process is finding a business loan provider they can trust and work with without difficulty. 

Though there are many different lenders you can work with, finding the right one means taking a close look at what works best for your business. Here are a few key things to think about when you start your search. 

1. Look at Both National and Local Lenders 

When you’re looking for business loan providers, the easiest place to start is with your local bank or credit union. You’re able to meet with these lenders to discuss your company’s needs in person. Even better, they may already be familiar with your business since they’re established in the community. 

Though local lenders are a great place to start, they’re not the only option you should consider. 

National lenders and online lenders are often able to help small businesses with their financing needs more easily. They have more resources at their disposal and are able to offer loans to businesses without an established profit history. 

If you can, look into loans offered by both local financial institutions and ones outside of your area. This way, you’ll increase the likelihood of getting a great loan that you can afford month after month. 

When you restrict your choices to your business’s bank or credit union, you restrict the types of loans you’re able to apply for. 

2. See What Their Reviews Are Like

Once you have a few lenders in mind, take the time to follow up with their references and reviews. Start by researching their reputation with sites like the Better Business Bureau and see what previous customers have to say about their services. 

Pay close attention to any repeat issues mentioned in those reviews. If several people mention the same problems or concerns, the chances are high that you’ll experience those same issues. 

After reading the reviews for a few business loan providers, it’s worth calling their representatives to see if they have any references you can speak with. If they do, follow up with those references and see what other business owners have to say about their financing services. 

Keep in mind that some lenders may not have references that are willing to discuss their experience with you. This is fine. Just read the online reviews more closely to get an idea of how they’ll treat your loan and your business. 

3. Pay Attention to the Company’s Financial Strength 

Before you start applying for loans, take a moment to research the company’s financial strength. Remember, you’re partnering with the lender to grow your business. If their business isn’t performing well, you can expect higher fees, fines, and interest rates for every loan you apply for. 

The best way to find information about the lenders’ financial strength is to look for their rating with S&P Global Ratings. If the company is in good financial shape, it’ll be a better lender in the long run. 

4. Understand Your Needs 

Ultimately, finding a business loan provider comes down to how much money you need to borrow in the first place. Believe it or not, some lenders have maximums that they’re willing to give different companies. 

These maximums mean you may not get the money you need to reach your goals or finance the types of projects you have in mind for your business. 

Before you start applying, make sure you understand how much money you need to finance your project or business improvements. Include this number in your application with your business plan for lenders to review. 

The more upfront you can be about what you’re requesting, the easier it will be for the lender to make a quick decision. 

5. Pay Attention to the Types of Loans They Provide 

One of the most important things you can do when talking to providers is to find out what types of loans they issue in the first place. According to the team at Loanpal, some lenders only issue one or two types of loans. 

For example, some companies work with SBA loans almost exclusively. Others issue short-term, hard money loans with high interest rates and low qualification requirements. 

Knowing what types of loans each lender issues will help you better identify the right companies to work with. Check each lender’s website and read up on the types of loans they provide. If you can’t find the details or want more information on specific types of loans, contact their loan brokers and get the information you need. 

Create a list of the types of loans you’re interested in and only work with lenders that issue those loan types. 

6. Consider the Fees Associated With Each Lender 

Unfortunately, anytime you take out a business loan, you’ll need to pay certain fees before you can get your money. Those fees vary from lender to lender. 

Before you start applying, try to find out what types of fees you can expect for your loan. Get quotes for origination fees, underwriting fees, and any other incidental charges before you submit an application. Keep in mind that those numbers may change based on the strength of your loan application. 

Review the fees each lender charges. As a general rule, you’ll want to go with the lender that charges the lowest fees and offers the most transparent fee schedule. 

7. Compare Quotes From More Than One Business Loan Provider 

One of the biggest mistakes that business owners make when applying for loans is working with the first lender that approves their application. Doing so is a surefire way to end up getting less money than you need at a higher interest rate than you deserve. 

Instead, get quotes from at least a few lenders before you make a decision. If you can, apply to several in the same time period. This way, the credit checks will have less of an impact on your score. 

Once you get quotes from each lender, review the quotes in detail. Look at the interest rate each provider offers you, the principal amount, the repayment terms, and any fees associated with the loan. 

Most business owners prefer to work with the lender that offers them the largest loan at the lowest interest rate possible. 

8. Look at Their Customer Service Quality 

Though it’s tempting to choose your lender based on the loan terms alone, it’s best to take a more cohesive approach. Throughout the application process, you’ll contact and work with several representatives from each loan provider. 

Think about how those representatives treated you when you spoke with them. Were they patient and helpful? Or did they try to rush the process and get you off the line as quickly as possible? 

The quality of the loan provider’s customer service matters. Once you accept the loan, you’ll still need to work with the lender to make sure payments get processed. If the representatives aren’t helpful or don’t seem to care about your business, you’ll find the process frustrating at best. 

9. Keep an Open Mind About Alternative Loan Options 

Though business loans are the most common way to finance projects, they’re not the only option you have available. When you’re applying for loans, it’s helpful to also keep an open mind about different loan alternatives. 

An alternative could mean partnering with an investor who receives a percentage of your profits in exchange for their support. Or it could involve taking a low-interest informal loan from family and friends. 

These are ideal options if you can’t qualify for a standard business loan or aren’t willing to take on the extra debt to grow your business. 

10. Above All, Consider Your Business 

Ultimately, the most important thing you can do when looking for a business loan provider is to keep your business’s best interests in mind. 

If you need the money but aren’t sure you can afford to make the minimum payments on the loan, wait. It’s best to look for other ways to finance your business. Remember, the more debt you carry, the more money you’ll have to spend each month to repay the loan. 

If that loan repayment plan puts too much strain on your budget, you’ll be better off not accepting the money. 

Keep These Things in Mind When Applying for Financing 

When you’re looking for a business loan provider, it’s always tempting to work with the first lender you find. Doing so doesn’t just put your business at risk, but it also hurts your overall financial strength. 

As you start your search, think about these key business loan provider factors. When you do, you’ll be in better shape to make a smart decision for your business’s finances. 

Looking for more tips to help you streamline your business's finances? Check out our business loan provider posts in the Loans section of the Bootstrap Business Blog.

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