It’s nice to be wanted. But sometimes when you’re besieged by business loan lenders eager to push cash in your hands, the offers can be a bit overwhelming. Your time is already limited, so how can you efficiently distinguish the right opportunity for your business, on top of finding the right lender to finance it?
The first step: take a deep breath, and exhale slowly. Chances are, your need for working capital isn’t so urgent that you have to leap at the first opportunity. Before getting too deep into your loan search, focus on finding a lender who will listen and understand your needs. You can also take this time to narrow down what you’re looking for in a loan, so you’re equipped with the knowledge before hopping on a phone call with a lender.
The Human Factor
So you walk into a car dealership and you’re tackled by an eager salesperson the second you cross the threshold. You came in looking for a modest, midsized sedan, but your salesperson may offer recommendations outside of your wheelhouse. If that’s how you feel after your first phone call with a lender, it’s time to hit the brakes. It’s the salesperson who’s trying to sell you the car you want — not the most expensive one on the lot — that you want on your side.
Ideally, you will be starting a long-term relationship with the lender you choose. Ask yourself these questions when you’re determining if the lender approaching you would be a good fit for your business needs:
- Has the lender taken the time to explain its own business philosophy and history?
- Is its philosophy compatible with your own?
- Have you been able to research the lender on your own, and come away with confidence that it will be around for the long haul?
The kind of lender who can be most helpful to you is the one who doesn’t speak to you in financial lending legalese and demand your financial data right off the bat. Rather, you should be dealing with a lender who patiently takes the time to ask questions, explores your needs, and then provides recommendations for one or more customized solutions, while explaining the pros and cons of each option.
One Size Doesn’t Fit All
Small business financing is not a one-size-fits-all proposition. While there are some common patterns, every situation is unique. And, unless you’ve already had a lot of experience working with business loan lenders (or any other kind of lender, for that matter), you might not be fully aware of all of your options.
Review this helpful guide of legal terms often found in business loan contracts before you chat with your potential loan lender. Arming yourself with exactly what you want will help you wade through the offers and hone in on the right one for you.
- Category of lender: Is the loan actually made by the lender you’re working with, or is that entity a loan broker or intermediary? One is not necessarily better than the other, but you’ll want to be sure that you will be able to maintain an ongoing working relationship with people who are flexible enough to make adjustments as your needs change.
- Secured or unsecured? In other words, do you have to pledge collateral (personal or business) that you’ll forfeit if you default on the loan, or is the loan based on your business credit history or other performance criteria?
- Loan amount: Some lenders will grant more credit than others. If the loan limit is too low (or too high) to meet your current needs, this may not be the right time to work with that lender.
- True loan or cash advance? With a cash advance, you are actually selling your receivables at a discount instead of borrowing. There’s a big difference. Both could be helpful depending on your situation, but just make sure to clarify.
- Equipment financing versus leasing: In some situations, an equipment lease is more economical than borrowing funds to purchase capital equipment, as it makes it easier to keep cash flow in check. If your need is to acquire equipment, review both options.
Throughout your business loan search, lenders will be reaching out to you at different points down the road, but keep cruising until you find a small business lender that will not only be a good partner but also offer a competitive financing package that meets your needs. And ultimately, remember, you’re the one in the driver’s seat.