A small business loan can make a big difference. Whether you want to grow your business, make your operations more efficient, invest in marketing, or another initiative, sometimes all you need is the funding to pay for these endeavors.
The first step in securing a business loan is to find a business loan lending partner. However, there are many business lenders to choose from, so how do you know what factors to consider? Below are four things to keep in mind when seeking a business loan lender.
- What Do You Need Funding For?
What is your primary reason for needing a business loan, and what will the money go towards? Are you looking to open a new location? Do you want to buy a competitor’s business? Is it to better manage your company’s cash flow? Do you need to purchase new equipment? Do you want to hire more staff?
These are just a few examples of why a small business would need to take out a loan. It’s essential to know why you need the funding so that you can find a lending partner that meets your specific needs.
- What Loan Amount Do You Need?
The second factor to consider is how much money do you really need? It’s possible that you don’t need as much as you think to achieve your business goals. Consider your means to repay the debt and how long you expect that debt to be hanging over your head. Yes, it’s said that business debt creates wealth, but it has to be used responsibly. You’ll want to partner with a lender who will approve your loan amount based on realistic expectations of your ability and timing to pay off the debt.
- What Type of Business Loan Best Meets Your Needs?
Before you pick a business loan lending partner, you need to determine what kind of business funding would be your best fit. The two most common types are working capital loans and a business line of credit.
A working capital loan is given in a lump sum amount. It usually comes with flexible requirements that allow you to put those funds towards various business expenses of your choosing. This loan type is a good fit if you have a set initiative in mind and know exactly how much it will cost you. This way, you can take out a loan for the right amount to cover that specific need.
A business line of credit gives you access to funds with a set limit, and you are only responsible for repaying the amount you use. For instance, if you are approved for a $50,000 credit limit and access $30,000 to purchase a company car, you’ll only pay fees on that $30,000. The remaining $20,000 is still available to you, if and when you need it. This type of business funding is a smart choice when you know you’ll need to access capital, but the actual amount could change under certain circumstances.
- What Kind of Lender Should You Work With?
Another significant factor to consider is who you partner with for your business loan – a traditional bank or private business lender?
The big banks may offer higher loan amounts, but their financing also comes with a more tedious application process and stricter approval requirements. When working with a bank, they’ll likely look at your personal and business credit scores, profit and loss statements for the past two years, tax returns, business plans, and more. And the approval time can take longer.
A private lending partner can provide more flexibility, faster funding, and less strict approval standards. However, each lender has its own processes for qualifying business borrowers, and it can vary based on what type of business you have.
If you are seeking a business loan lending partner, contact a Cross Timbers Mortgage loan expert. We can match you with a lender that would be the best fit for your business needs.