Credit Tutorial: Finding A Rock Solid Lender

Cash is key to running your business – that’s no secret. But it can be tough to navigate the murky waters of the lending industry. You need someone that has your back.

What Are We Looking For?

What exactly makes a good lender? The most obvious element is that they’ll give you the funding you need at a rate you can afford and with terms that work for you. But that’s just the baseline; there are lots of other considerations.

Your relationship with your lender is critical for your business. You need that first loan but you’ll also need to have someone to reach out to when you want to change the terms, refinance, or seek additional financing. If you’re on good terms with the person handling your account, all of that will be much easier. It’s ideal when only one or two people work on your account, so you can have a face and a name to work with. If your account goes into a general pool without a dedicated manager, it can be harder to build the relationship you need. Some lenders, including AOF’s lending arm Opportunity Fund, even offer mentors and advisers to help you achieve success.

You also want for a lender with expertise that fits your business. If you’re looking for a small loan for a startup, you’ll have the best luck with lenders that have plenty of experience with startups. They’ll have a better sense of how to evaluate your loan application and how to work with you. Some lenders even specialize in certain industries and will have additional expertise, resources, and systems in place to make the process fit your business better. Accion, for example, specializes in small loans for startups in a variety of industries.

You’ll also want to be aware if a lender is a signatory of the Borrower’s Bill of Rights, which is designed to protect you from unscrupulous lending practices.

Long story short, a good lender:

• Can provide you with the financing you need
• Will work with you directly and personally so you can build a long-term relationship
• Knows your kind of business and your industry
• Operates openly and honestly

Now that we know what we’re looking for, how do we find it?

1. Do Your Homework

Make sure you have all of the information you’ll need to apply for a loan ready to go before you start looking for a lender. Most importantly, financial statements and a business plan. Before you can choose a lender, you need to know what kind of loan you’re looking for, what amount you need, and how you’re going to spend it.

Once you know what kind of loan you’re looking for, you can start checking out lenders. Start by making a list of all the lenders in your area. Traditional lenders like banks will be easy to find, but you’ll also want to include other types of loan sources. Your community may offer government-funded loans for some types of projects and microlenders may provide loans in your area, for example. Online tools such as enterpreneur.com can provide information on finding, comparing, and assessing small community banks as well. You should also check out the SBA – they offer a variety of loan programs for small business and startups.

Take a look at what these lenders offer and compare it to what you need. If they don’t offer the right size or type of loan, then you can cross them off the list right away. If they do, you can do some more research. Do they specialize in a certain type of lending or a certain industry? And don’t just look at their websites. Google each one – find out what other borrowers have to say about their experiences with each lender.

It’s also a good idea to take a look at the Borrower’s Bill of Rights. This will tell you what to expect and what red flags to watch out for in a lender.

Finally, take a look at their requirements. Some will require several years of business financial statements or credit history, or will only offer loans over a certain amount. Others will only offer loans to people with a minimum credit score. If you’re starting a new business or if your credit score isn’t strong, you may want to focus your search on the SBA and microlenders like Accion Opportunity Fund. Their requirements aren’t as strict and they specialize in helping small businesses get off the ground.

2. Pound The Pavement

Once you have your list narrowed down, gather up your financial information and set out to meet them! Schedule a consultation with each lender so you can have a face-to-face conversation about what you need and what they can offer. Don’t forget to ask about:

• What kind of loan can they offer you and what the terms would be?
• How your account will be managed – will you deal with one representative all the time or a different person each time?
• Does this lender have a lot of experience with this type of loan and with your kind of business?
• Do they offer any other perks, like mentoring or business advising, in addition to the loan?

This is all information that you need, but it’s also a great way to get a feel for the lender. Is the person you’re talking to being open and explaining everything clearly? Do they know the answers to your questions? Follow your gut here – you don’t want to deal with a lender you don’t think you can trust.

If you’re just starting your business and are looking for a smaller loan amount, you may find that traditional lenders aren’t able to give you a loan. They often aim for larger loan amounts and more established businesses with an established credit history. If that’s the case, focus your search on other types of lenders. Accion and other microlenders, for example, specialize in small loans for startups and don’t depend as much on your business credit to determine whether to offer you a loan.

3. Weigh the Pros And Cons

Now it’s just a matter of figuring out which one you think is the best fit.

There will be some lenders that fit your needs better than others. As mentioned above, startups may find that the mentoring and small-business expertise of a microlender is a better option than a traditional lender or that traditional lenders are not an option. If you have the ability to take advantage of a government-funded loan program, consider whether the terms of that program are going to work for your business.

4. Apply

When you have your top pick, it’s time to apply! You’ve already talked to the lender and they’ve already taken a look at your financials, so you have a pretty good chance of being approved. If you’re not, you can always move on to your second pick.

As always, you should work through the loan terms very carefully before you sign and ask questions to make sure you understand everything. Even the best lender can make mistakes or fail to explain something clearly.

Conclusion

A good business lender is worth their weight in gold (pun intended). And you need more than just a lender that will give you the money you need. This relationship is really important for your business and will, with any luck, last for a long time. Now you know what you’re looking for – a lender that you really want to do business with. So do the homework and the face time and find the lender that fits you!