If you are looking for a business loan, you can look at it from a sales perspective. In this case, you are selling the idea of your business profit or value to the lender. Your pitch shows how likely you are to repay the lender's investment (loan) in full and on time. To get a loan, you have to make your business look as attractive as possible.
Many businesses, however, tend to pitch to their customers rather than tell lenders (and rightly so). This is one of the reasons why it is difficult to get the money they need. The loan application package must be complete, attractive, and meet both the criteria specified by the lender and any basic criteria they use to make judgments but may not be available to the public. Most lenders also have a preferred borrower profile that they like to lend to.
The top reasons that lenders reject small business loans:
- The business does not have a formal business plan
- Too many applications from too many lenders at once
- Missing documents or errors in the application
- Applying to the wrong lender
Your business credit report and business tenure play into a lender's decision, but they certainly aren't the only aspects of your business that a lender will look at. Others will also check the personal credit of key stakeholders in your business and possibly conduct background checks on them. Others are primarily concerned with the number of assets your business holds.
The bottom line is that you need a lender who is interested in your category, risk profile, and unique characteristics of your business. Choose who you apply with and be careful how you apply. If all of this sounds overwhelming, fear not. You can make your loan application shine, get lenders to compete with you, and get the money you need quickly by working with a broker. Let's dive deeper into choosing the right lender and how your broker can help you succeed.
Online lenders
Most of us tend to look for things we need online. When we need a loan, it is usually our first line of inquiry and leads us directly to online lenders. Online lenders seem to be fast, convenient, and hassle-free to meet face-to-face. Much of that may be true, but that does not make them the most suitable lenders for your business.
Online loans are mainly for low dollars – $200,000 or less. That's a problem when you're acquiring a new business, buying real estate, or boarding certain types of equipment. These are called application-only loans because they don't require looking at your business books. That means they don't know you or your specific business needs. Therefore, although these loans can close quickly, they are rarely considered.
What You Should Consider
You're on the hunt for a small business loan, but not just any loan will do. It's important to look beyond the shiny dollar signs and see what's really on offer. Here are some of the main aspects of a loan that you should consider before signing on the dotted line.
Speed
So you have found a lender that can disburse funds to you within 24 hours of approval. Sounds good, but what's really going on here? In most cases, what you gain in speed you give up in interest rates. Because the lender doesn't take the time to get to know you, they don't have a full picture of your risk profile. Therefore, they reduce their risk by charging interest which helps them hedge their risk.
If you're not in a hurry, you'll probably save money with less debt. That could mean a long-term loan like a commercial loan or a full application process like an SBA loan. But, if you can't wait, there are still ways to improve your income without paying a high price.
Amortization
Amortization, in terms of the loan, is basically how much of your monthly payment goes to your principal and how much goes to interest. Usually, the interest rate is higher when you first take out a loan and decreases towards the end of the term. The amortization period can also extend the term of the loan to give you a lower monthly interest rate. However, the remaining interest amount will be paid in the lump sum when your loan matures.
Depending on how fast your business is growing, you will benefit from a different payback period. But regular loans, like those from online lenders, don't consider your growth because the lender doesn't require you to submit that information to apply. A broker who knows your business goals will automatically eliminate loans with inconsistent amortization, so you don't waste time on bad loans.
Goals
Your loan term is how long you will be making payments on the loan before it is paid off. Generally, short-term loans have higher interest rates than long-term loans. If your business consists of commercial properties, however, you may not want a standard mortgage. Since you will see a return on your investment in the short term, it does not make sense to keep debt for a long time. But with a long-term loan, you will face prepayment penalties and other early repayment fees.
Funds
If you've ever read a payment schedule in detail, you may have had to squint to see the fine print. Although lenders are required to disclose their finances, they do not always do so in the most accessible ways. The fees can be large and if you are not prepared, it can be an unpleasant surprise to close your loan.
A good broker knows what payout structures should look like, given a certain level of risk. We will probably already skip the lender with the unreasonable parameters from our list of similar possibilities. It's just one way we save you time, effort, and money.
Interest Rate
If you have received a loan offer, especially if your applications have not been successful in the past, you may think that you are late for the interest rate on the page. But, this is not always the case. Even if you're currently on a high-interest loan, you can get down to a lower rate with either the same or a new lender. Without submitting another loan application, how do you know what you qualify for?
We stay up-to-date on the current terms, rates, and underwriting conditions of most lenders to help our clients achieve the goals and rates that market conditions dictate. We also know which lenders specialize in the type of financing you need and the industry you represent. That narrows down the choice of lenders that are right for your time.
How Marketers Help
Our main role is to facilitate the search for a loan and properly package your application to demonstrate the value of your business to lenders. Here is a summary of the benefits we provide to borrowers:
- We customize bills to fit your business.
- We help you decide which loan terms are the best fit.
- We clarify lenders' fees and terms and weed out bad lenders.
- We build relationships with lenders to get their customers discounted rates.
- We create an application package that is accurate, complete, and lets your business shine so you don't have to repeat the process every time you apply.
Your chances of being approved for the loan you want at rates and terms that suit your business always increase when you work with a broker. Also, you need a lender who is interested in your category and risk profile. The fastest, most accurate way to find that lender is through a qualified broker.
So the next time you're hunting for a business loan, don't use the “shoot the gun” approach and go to every lender you can find. With every missing dot, your credit score and your chances of getting approved go down. Be honest, be precise, and be better equipped to succeed. Contact our team for a free evaluation. We are happy to point the way.
