A few years ago not many Canadian small business owners had heard of online small business loans or alternative lenders. In 2010 there was only a handful of companies providing the service in Canada so most small businesses would automatically think “bank” or “credit union” if asked where to get a loan for their business.
In 2016, small business owners have more choices than ever before. Online business lenders are increasingly popping up in the financial technology (fintech) world and filling a major gap for Canadian small businesses often overlooked by the banks. The only downside of “more choice” is that it takes time to do a little research on all the different options and all the different companies.
So as a business owner looking to borrow money to grow your business, you owe it to yourself to take the time to shop around and research the terms of the loan, the contract, the fees, and most important, the company.
Here’s a few things you need to ask and/or find out before signing the loan contract:
If dealing with a Canadian company is important to you, ask for details about the company. Where is their head office, who owns the company, how long have they been doing this, what is their BBB rating, etc. If the person on the other end of the phone doesn’t know, you can probably check these guys off your list…it’s likely you’re talking to a broker. You should also check their website “contact us” page and “about us” page as a double check. If there is no “contact us” or “about us” page on their site you have to ask yourself…”what are they hiding?”
Are you talking directly with the funding company or are you talking to a broker? If you are dealing with a broker you will always pay more. Always. They act on behalf of the funding company and add 10% or more to the cost of the loan. It’s best to move on and contact the lender directly.
Always ask about the total cost of the loan and get it in writing before you go any further down the road. Many companies have “origination fees” that add up to 5% of the quoted cost. Others have “insurance fees” or “admin fees”. Some companies will take $500 off the top of your loan even before you receive the funds. Others charge renewal fees. Ask up front about all of these extra fees. Ask for the “total payback” amount and get it in writing.
Ask about early payment or pre-payment penalty. If you want to pay out the loan early will you need to pay the full term amount of interest or is there a discount available? Some companies charge the full term amount, others make you pay 3 months of interest, others will give you a 25% discount on the remaining interest, and others have no prepayment penalty at all (like us).
Ask for a copy of the loan agreement before you commit to anything.
Ask how flexible they are. What if you have a small emergency and need to skip a couple payments? Can you reduce your payments for a month or two? Can you extend the term of the loan for a couple months? Can you top up the loan at any time? Are interest only payments available? Many of the big companies with automated systems may not be able to help you with these requests…but we can.
With a new industry with so many options, finding the right small business lender can be a challenge. Although it may take a few hours of research, you owe it to yourself to find the best deal for your business. Shop around, get 2 or 3 quotes, ask for references and feel free to contact us with any questions.