In any industry, some companies are better than others. It’s usually not too hard to figure out what separates the good from the bad, but when it comes to borrowing money for your small business, it’s not always as easy as it seems. With all the online business loans available these days no two online lenders offer exactly the same rates and terms. So shopping for the right loan to suit your business purpose is just as important as actually getting approved for the loan.
Be a smart borrower
The recent influx of options within the small business lending landscape is making more capital available than ever before. However, borrowers need to become smarter in how they evaluate those options to ensure they make the right choices. Don’t be afraid to dive deeper to make sure you understand the pros and cons of any potential small business loan so that you can make an informed decision.
When looking for a business loan, it’s important to ask yourself these four questions:
What is my loan purpose?
This will not only help you determine whether or not the cost of the loan and the loan term make sense, it will point you in the direction of the lenders who are best able to help you meet your needs.
How much money do I really need?
Your needed loan amount will also help you determine where to look. For example, many banks would prefer to avoid making a $50,000 loan in favor of a $500,000 loan. What’s more, if you know exactly what you need, it tells any potential lender that you’re taking a thoughtful approach to borrowing to meet a specific need, rather than looking for a blank check.
What is the total cost?
Because different lenders have different terms and different fees, understanding the total cost of financing is important. 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. Always ask for the “total payback” amount and get it in writing.
Do I have all the information I need to apply?
Traditional lenders will sometimes require a different set of information when you apply than an online lender. For example, a business plan might be necessary at the bank, but likely won’t be a requirement with an online lender. Before you apply, make sure you have the right documents and information at your fingertips. And make sure you’re comfortable with the company – ask for referrals and check with the Better Business Bureau.
Online lenders are definitely making more capital available to business owners, and while it’s not necessary that a business owner become a financing expert, the new landscape does require that business owners do their homework.