Key Qualities to Look for When Choosing Between Business Loan Companies
June 20, 2022
June 20, 2022
In this article, you will learn:
Many entrepreneurs donâ€™t fully realize what a business loan involves until theyâ€™re in the middle of applying for financing. And thatâ€™s typically when they start wishing they had done their homework ahead of time!
Some business loan companies have lengthy and stringent loan processes and arenâ€™t always the right fit for your business needs. Unfortunately, if you donâ€™t learn this until youâ€™re halfway through the application process, it could cause you a big headache and delay getting started on your business plan. In the meantime, your small business or startup could lose out on a great opportunity. So, what are some key qualities to look for when choosing between loan companies?
Letâ€™s find out.
The obvious benefit of a business loan is that it helps fund a specific need for your business.
For example, a commercial real estate loan can help you buy the perfect property from which to run your business. You might already operate a thriving business on one end of town but realize there is an underserved area on the other side of town. The right real estate opportunity comes along to help realize the vision of opening a second location. All you need is the capital to make it happen.
Or maybe you have a heavy equipment rental business and want the latest models to put in your showroom. An equipment loan can give you the funds to expand your offerings.
Maybe you just need some cash to get through a tough seasonal lull in your business. A working capital loan can help fulfill that need.
You also might want quick cash at your disposal to facilitate ongoing business needs. A business line of credit would be perfect for that.
But there are other benefits to business loans as well.
Some small business owners rely on outside investors to fund their ventures. The downside to this is that you no longer have a full stake in your own company. But with a small business loan, you retain control over your business while getting the funding you need to grow your business. Retaining 100% ownership also means you keep 100% of the profits.
Typically, the interest you pay on a business loan is tax-deductible. Of course, youâ€™ll want to check with your CPA to ensure that the type of loan youâ€™re applying for will qualify as a tax deduction. There may also be a limit to how much interest you can deduct.
Small business owners usually need funding many times over the course of running their business. A business loan will help you build and improve your creditworthiness every time you take out a loan and pay it in a timely manner. As your credit score improves, this will help you secure future loans at better terms and lower interest rates.
Business loan companies use different criteria when it comes to evaluating borrowers. Most lenders use the 5 Câ€™s of credit when considering whether or not they will approve a business loan.
Together, the five Câ€™s will help a lender evaluate your creditworthiness and the level of risk associated with loaning you money.
There are two primary considerations when applying for a business loan. The first is choosing the right type of business loan product, and the second is choosing the best business loan provider for your needs.
But, before you can figure those things out, you need to assess a few things from your end. There are some questions you may want to pose before figuring out the best business loan for your business.
The answers to these questions will help determine the types of business loans you can qualify for while narrowing the focus on which lenders are more likely to approve financing for your business.
Speaking of lenders, there are three primary funding options when it comes to small business lenders.
Alternative lenders and online business loan marketplaces, such as Biz2Credit, have become increasingly popular. One reason for this is their seamless loan process and high approval rate. More than 60% of business owners who seek financing with an alternative lender are likely to be approved for funding.
Online lenders are an especially good loan option if your credit history is less than stellar, or you need funding right away. Biz2Credit, for instance, often has cash in hand to its borrowers within 48 hours.
In some cases, a lending marketplace will have interest rates that are very close to what a traditional lender will offer. On the other hand, some online lenders have excessively high rates, so youâ€™ll want to carefully evaluate which lender you choose.
Traditional lenders want to see really good credit when considering financing a business loan. Because of this, only about one-quarter of small business owners are approved for commercial funding from a traditional lender or bank.
But if you can be one of those one-in-four business owners to get commercial financing with a bank, their interest rates are typically lower.
Traditional lenders usually have shorter payback times than SBA loans too. And while a bank is likely to process your business loan application faster than the SBA, it still takes much longer than it does with an alternative lender to find out if youâ€™re approved for your business loan.
The Small Business Administration partners with banks, credit unions, and microlenders in offering loan programs to small business owners. Depending on which loan program you go with, the SBA guarantees from 75% to 90% of the loan.
SBA loans are a good option for small business owners who want more favorable repayment terms than a traditional bank alone offers.
However, there is an inordinate amount of paperwork that must be completed during the loan application process, even more so than with a traditional bank, and the loan process can take months.
Even then, you wonâ€™t know for quite a while if youâ€™re even approved for the loan. The SBA is quite strict with its lending guidelines, so itâ€™s challenging to receive approval.
If you need fast funding for your business venture, an SBA loan is probably not your best option.
When choosing between business loan companies, the best option is often the one with the traits you need in a lender â€“ flexibility, ease of lending, and fast approval and funding. That often means an alternative lender that offers you funding when you need it rather than the way traditional lenders tend to operate, which is on their timeline.
Biz2Credit has facilitated commercial loans for 15 years and has the key qualities business owners seek when searching for a business loan company.
Biz2Credit client Deepak Vermaâ€™s advice to business owners is to work with a lender that you can trust. He said that his Biz2Credit case manager was willing to work with him all weekend to get his business deal done and help Deepak see his acquisition of a car wash business become a reality.