Business lending encompasses such a wide field that knowing who to trust can seem impossible. Whether you’re just starting your business or are a veteran of the business community, there’s always more to learn about business lending. Below are five things you should know about business lending to help you prepare for your business’s future.
#1 Collateral is Key
While you believe in your business, lenders need to have some sort of fallback plan if things go south. Having assets that you can provide as collateral will help you get approved for the funds you need, but the type of assets matter. While equipment and property assets are most common, some banks will accept inventory and invoice assets as well, if proper documentation of their value is provided. Know what you can present as collateral before going into any meeting, and bring documentation demonstrating the asset’s worth.
#2 There May Be Hidden Fees in Business Lending
Make sure you know exactly what your loan or line of credit entails, including any enrollment, service, prepayment, and default fees. If it looks too good to be true, it might be. Forbes lists nine different places fees can hide in your loan agreement. Research these ahead of time, and know what you’re getting into before signing anything.
#3 It’s Not Personal, But It Can Feel Judgmental
It’s easy to take rejection as a personal affront, especially after all the time and effort you put into making your business grow. While lenders, like everyone, can make snap judgements based on what you’re wearing to the meeting and how prepared you are, most rejections come down to a specific lending profile and the lending policies of the specific lender. If you are rejected from one lender, use this opportunity to learn. Some tips for your first meeting:
- Dress professionally, no matter the industry of your business
- Arrive on time and communicate if you will be late
- Don’t allow emotions to blind you from the strengths and weaknesses of your business
- Bring all documentation requested and then some (it’s always better to be over-prepared)
- Be prepared to listen to constructive criticism, but also remain strong in your business vision.
#4 The Lowest APR is Not Always the Best Option
Just because a lender offers you a loan with a low interest rate doesn’t mean it’s the best option for you. Your APR may include a variety of costs in addition to the standard interest rate. INC helps break this down more, but the most important thing you can do is ask your lender what is included and what is not.
While the APR is important, make sure that the rest of the loan requirements meet your needs as well. Is the repayment period fair? Can you use all the money at once or is it provided over time? Were you approved for the full amount you need?
Rod Loges says it this way, “Understanding all the terms of a proposed loan is important, and most of all how those terms will impact your business. All loans are not good loans, based upon the needs and situation of the business.”
#5 Find a Lender Who Has More than One Loan Program to Offer
It is usually most helpful when you can find a lender who brings a variety of options rather than just trying to fit you into one loan program. While lenders may want you to be successful, if they only have a narrow set of loans they can offer, that will be the lens through which they are forced to provide options.
That’s why it’s important to understand the role of a Capital Advisor. This is a professional who can guide you through all the best options (and there are many) and help you successfully secure the best money for the business need.