From time to time, many small businesses in all industries need outside financing to keep their doors open. But with so many funding options available, how can small business owners be confident they’re choosing the right loan provider?
Here are five tips to consider while shopping for your small business loan provider that should increase the chances you find a lender you’re happy with.
Gather your company’s financial documents.
Before approving your loan, any lender—from banking institutions to alternative financiers—is going to peek at your small business’ finances. So before you begin trying to secure a loan, you’d be wise to gather relevant documentation to streamline the application process.
Once you’ve decided to apply for a loan, collect relevant business information, ownership information, income information and your taxpayer ID or employer identification number (EIN). While alternative lenders generally require a single year of data, traditional banking institutions may ask you for three years of information—if not more. In any event, the more prepared you are, the quicker the process will be.
Understand the various kinds of funding options available to you.
If you’ve not yet done any research on the topic, you may be surprised to know that small businesses have a number of outside sources of financing available to them, many of which offer different kinds of lending.
Different financial vehicles—like traditional bank loans, loans from the Small Business Administration, credit card factoring, merchant cash advances, business lines of credit and working capital loans from alternative lenders—will make sense for different businesses. Do your research to figure out your options, and you’ll be able to make an informed decision as to what works best for your company.
Keep in mind that you’re much likelier to be approved for financing from an alternative lender—particularly if you have a bad credit score or haven’t been in business for too long. According to recent data from the Small Business Administration (SBA), fewer than 50% of small banks approve loans to small businesses, and fewer than 22% of large banks do. Alternative lenders, on the other hand, approve more than 61% of the applications they receive.
Find a lender who is able to offer you enough money.
Even if they love what your financials look like and think your business is doing great after reviewing the information you provide, not every lender will be able to give you all the money you need to grow your small business. For example, some lenders are able to loan you up to $1 million, while others might not be able to extend anywhere near as much funding.
According to the SBA, small business loans can range from $5,000 to $5 million. Spend some time figuring out how much money you need, and search for lenders who are able to extend that much capital to you. Apply for loans with lenders who can accommodate your needs.
Look for lenders who can move quickly.
When your small business faces a cash shortage, you don’t exactly have a lot of time to wait for outside financing to come in. Your business needs money—and fast.
Unfortunately, many traditional banking institutions—as well as the Small Business Administration—can take a lot of time to approve your small business loan application. It’s not uncommon for these kinds of lenders to take 30, 60 or even 90 days to complete the funding process.
Instead of waiting around forever for an approval that might never come, consider an alternative lender that offers minimal paperwork and same-day approval. That way, when you need money, you can get funded quickly—and put your cash to work right away.
Shop around for the most favorable rates possible.
Taking out a loan is a major event in your company’s history. As such, you can’t expect to sign up for the first loan you stumble across. Who’s to say it’ll offer your business the best rates?
Because money is at stake, you’d be wise to shop various lenders to determine which one offers you the most favorable rates. Look for financiers who base their decision to fund small businesses on performance, payment history and industry risk scores. The best lenders will be rated highly by the Better Business Bureau and will come highly recommended from existing customers.
You may be tempted to apply for a loan with the first lender you come across. But don’t sign a contract before you’ve spent enough time researching the lender and approve of its products and reputation. Once you’ve found the lender you like the most, apply for your loan and grow your business. It’s that simple.