For most small businesses, the question isn’t whether you will need a loan, the question is when. The business cycle involves ebbs and flows of capital needed to pay bills, draw salary and buy inventory. Without sufficient liquidity, a business may have to cut staff, curtail operations or simply close down. An affordable commercial loan is a lifeline that allows the business to continue to thrive and grow. But not all loan offers are the same. Let’s take a look at what separates the good from the bad.
- Size: Most banks scale small business loan offers solely to a company’s credit rating and history. Many a bank loan is turned down or is too small because loan officers have no leeway to look upon each applicant in its entirety. What you want is a loan offer that judges your business holistically, one that values cash flow as much as credit. A good commercial lender will use information — such as RiskLogic scores, industry, years in business and geographic location — to approve loans that bank loan officers can’t or won’t. A good lender should see how you’ve operated in the past and how you’ve used previous loans — did you use them to grow the business or to make foolish purchases.
- Speed: Bureaucracy, thy name is bank. If you’ve ever wondered why it takes a bank forever to approve (or disapprove) a small business loan, it’s usually because the people making the decisions reside in corporate headquarters — New York, Charlotte, Hartford, etc. — and have no personal contact with applicants. Applications are often paper-based and sending the information around the country takes time. A better idea is to use quick online application, have a fast-track reference process, deliver pre-approval in seconds and provide funding within 24 to 48 hours.
- Cost: Not all lenders charge the same. Merchant cash advances are notoriously expensive. When looking at alternative lenders, pick the one with lowest rates and the best reputation for trustworthiness, such as an A+ rating from the BBB. Choose a lender that charges simple rather than compound interest and which doesn’t penalize you for early repayment.
- Convenience: The easiest way to repay a small business loan is to have fixed daily payments automatically taken directly from your account without distracting you from your business. Also, daily fixed payments are easy to budget. A good lender will offer a loan renewal once 40 percent of the original loan’s principle has been repaid. Renewal can result in a lower interest rate and/or higher loan amount.
- Credit Enhancement: Guess what – a credit card advance or merchant advance does nothing to build your business’ creditworthiness. That’s another reason to stay away from this type of borrowing.
- Human Factors: Does your bank seem cold, remote and have trouble remembering your name. Look for a lender that values human interaction while remaining entirely professional. Courtesy should not be optional. Look for a lender that understands small business because it has roots as a small business.
- Honesty: No funny business! Watch out for bait-and-switch tactics, hidden fees, rates that change after the small business loan is made, and pushy loan officers who try to talk you into loan products that are not in your best interest. If a lender requires a large application fee, run the other way. There should be no upfront costs when applying for a loan.
- Availability: Lending at many banks simply dried up in 2008. Big business created the crisis, but small businesses took it on the chin. Look for an alternative lender that made loans when banks wouldn’t. They’ll be there the next time Wall Street blows up the economy.
At IOU Financial, we strive to be the best in all eight of these factors. See for yourself — contact us through email or online chat, or call us at 1-866-217-8564. Don’t settle, select!