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6 Tips For Choosing Small Business Lenders


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It’s very common for small business owners to look to lenders to help them finance a variety of business expenses. But finding the right lender can be a challenge all on its own.

Understanding Your Needs in Finding a Lender

When comparing small business lenders, it’s essential to understand the underlying factors that differentiate one lender from another. These factors can range from the types of loans offered, the terms and conditions, the speed of approval, to the quality of customer service.

Small businesses often require external financing to support their operations, growth initiatives, or to manage cash flow. The landscape of small business lending has evolved significantly over the years, with a plethora of options now available beyond traditional banks, such as online lenders, credit unions, and peer-to-peer platforms. Each of these lenders has its own set of advantages, disadvantages, and unique selling points.

Steps to Compare Small Business Lenders

Let’s take a look at how you can compare small business lenders. This is assuming your business has a clear understanding of its financial needs and has determined that external financing is the best option. 

We’re also supposing, your business is looking for the best fit in terms of a lender and not just the first available option. As you start making inquiries about financing, make sure your business also has access to its financial statements and other relevant documents that lenders might require.

  1. Determine your needs: Before diving into the comparison, understand what you need. Is it a long-term loan, a line of credit, or a short-term loan? The type of financing you need will guide which lenders are most appropriate.
  2. Research types of lenders: As mentioned, there are traditional banks, online lenders, credit unions, etc. Each has its own strengths. For instance, online lenders might offer faster approvals but at higher interest rates.
  3. Compare interest rates and fees: This is often the first thing businesses look at. While important, it shouldn’t be the only factor. However, understanding the total cost of the loan is crucial.
  4. Review terms and conditions: Beyond just the interest rate, understand the loan’s terms. This includes repayment schedules, any penalties, and flexibility in terms.
  5. Speed of approval and funding: For businesses in need of quick cash, the speed at which a lender can approve and disburse funds might be a deciding factor.
  6. Customer service and support: Especially for businesses unfamiliar with the lending process, having a lender that offers robust customer support can be invaluable.
  7. Check reviews and testimonials: What are other businesses saying about the lender? Reviews can provide insights into the lender’s reliability and customer satisfaction.
  8. Understand collateral requirements: Some loans might require collateral, while others might not. Ensure you’re comfortable with what’s being asked.
  9. Consider the future: Think about your long-term relationship with the lender. 
  10. Check out their Better Business Bureau rating: Look into the lender, and see if they’ve got any accolades that they can boast. The Better Business Bureau (BBB) offers ratings on various companies, including financing firms. If you see an ‘A’ rating, then you know you’re dealing with a reputable company. Anything less than that should be considered with caution.

Interest Rates

Here’s what to consider when looking at interest rates:

  • Type of interest rate: Understand whether the rate is fixed (remains constant over the loan term) or variable (can change based on market conditions).
  • Annual Percentage Rate (APR): This provides a more comprehensive view of the cost of borrowing as it includes both the interest rate and any associated fees.
  • Comparative analysis: Compare rates across different lenders. A lower rate can save significant money over the loan’s lifespan.
  • Market trends: If considering a variable rate, it’s beneficial to have an understanding of current market trends and predictions.

Repayment Terms

When thinking of repayment terms, think about:

  • Duration: How long do you have to repay the loan? Shorter terms might have higher monthly payments but can result in less interest and fees paid over time.
  • Frequency: How often are payments due? Monthly, quarterly, annually?
  • Flexibility: Can you make early repayments without penalties? Is there an option for a grace period if you miss a payment?
  • Amortization: Understand if the loan is fully amortizing (you’ll pay off the principal by the end of the term) or if there’s a balloon payment at the end.

Fees and Charges

When weighing potential fees and charges, keep in mind:

  • Origination/underwriting fees: Some lenders charge a fee for processing the loan. This can be a flat fee or a percentage of the loan amount.
  • Late payment fees: Understand the penalties for missing or being late on a payment.
  • Prepayment penalties: If you’re in a position to pay off the loan early, are there fees associated?
  • Service fees: Some lenders might charge monthly service fees or annual fees.
  • Closing costs: These are fees paid at the closing of the loan transaction. They can include application fees, title search, and more.

Key Factors in Picking the Best Lender 

Picking the best lender is driven by a few core considerations: loan offerings, the speed at which you get approved, and flexibility, to name a few. Does the lender offer the type of loan or financing you need, be it short-term, long-term, line of credit, or specialized financing? 

When weighing your options between lenders, you should also consider their reputation.  What do other businesses say about the lender? Online reviews, testimonials, and industry feedback can provide valuable insights.

Another factor to consider: How fast can you get approved? If you’re in urgent need of funds, the turnaround time from application to fund disbursement can be crucial.

Is your lender flexible and willing to work with you? Does the lender offer adaptable repayment terms, or options to adjust terms based on business performance?

Questions to Ask When Choosing a Business Lender

Make sure you take notes when you ask your prospective lender the following questions. When it comes time to compare options later, it’s easier to have the information on hand.

  • What are the full terms and conditions of the loan? This encompasses interest rates, repayment terms, fees, and any penalties.
  • Is there a prepayment penalty? For businesses that might want to settle the loan early, this is a key consideration.
  • How is the application process structured? Understanding the required documentation, timeframes, and steps can help businesses prepare effectively.
  • What support mechanisms are in place for borrowers? This could range from advisory services to assistance in challenging financial periods.
  • How does the lender handle defaults or challenges in repayment? Gaining clarity on this can help businesses understand the potential risks and the lender’s approach to partnership.

How to Pick a Lender Confidently

Though some of this information will highlight what we’ve already discussed, it’s important to bring up again because of how much of a difference it can make in your decision-making. 

The first step in this journey is to have a clear understanding of your financial requirements. This encompasses not just the amount needed, but also the purpose of the loan, the desired duration, and any specific terms that would be beneficial. 

For instance, a business looking to finance a short-term project might have different criteria than one seeking long-term capital investment.

Reputation also plays a pivotal role in the decision-making process. A lender’s track record, reviews from other businesses, and industry reputation can provide valuable insights into their reliability and customer-centric approach. It’s essential to partner with a lender known for transparency, fairness, and support.

The intricacies of the loan offering itself cannot be overlooked. Beyond the obvious consideration of interest rates, understanding the full terms and conditions, including any hidden fees or charges, is crucial. This ensures that your business isn’t caught off guard by unexpected costs or restrictive terms down the line.

Additionally, the lender’s responsiveness and support mechanisms are incredibly important. The lending process can be intricate, and having a lender that offers robust customer support, advisory services, and flexibility can make a world of difference, especially during challenging financial periods.

Small business owners in all niches often face the difficulty of choosing the right business financing lender. You want to be certain that the lender you select is reliable and will be able to help you with all of your business needs.

Identify the Types of Loans the Lender Offers

Ideally, the lender you decide to work with should have a variety of financing programs that they offer consumers. No two businesses are the same, nor should the loan option be. As such, you should have your pick of the litter when it comes to the types of loan programs to use, including the following:

  • Business Cash Advance – While not necessarily a “loan” in the traditional sense, a business cash advance can provide you with the money you need to cover a variety of business expenses. After receiving the advance, the lender will take a certain percentage of your daily credit card sales as your method of repayment. Since the amount you pay is a direct reflection of how much you make in daily credit card sales, your payments will vary. In this way, you’ll pay more during busier months, and less during slower months.
  • Invoice Financing – A common issue that many small businesses face is the delay between invoicing customers and suppliers, and actually receiving payment. During these gaps in payment, your working capital can suffer. With invoice financing, the lender will buy your invoices and advance you about 85 percent of the funds. The rest of the money is kept in reserve, which the lender will tap into to take their associated fees. Once the invoices are paid, you receive the rest of the money that’s held in the reserve funds.
  • Short-Term Business Loan – Much like a traditional loan, your lender will provide you with a lump sum of cash for you to use for a variety of business purposes. You then promise to pay back the loan, along with added interest payments. There is usually a fixed repayment time period, as well as fixed regular payments which are usually made daily rather than monthly (like a long-term loan). The amount of money funded is typically much less than a longer-term loan. Short-term loans are best suited for situations where you need quick cash to cover an operational hiccup here and there.
  • Business Line of Credit – These work similar to a credit card. You’re given access to a specific amount of money that you can withdraw any time you want. You can use this money in whatever way you see fit, and you are only charged interest on the amount you owe. As you put that money back into the line of credit, you’re free to use it on a revolving basis.
  • Equipment Financing – Rather than affecting your cash flow to buy your equipment, you can finance it instead and leave your working capital alone. With equipment financing, you’re given a certain amount of money to pay for various pieces of equipment. The loan is then paid back, along with the lender’s fees, until the entire loan is paid off in full. Once you’ve made good on your promise to pay the lender back, the equipment is considered all yours.

Helping You Choose the Right Lender For Your Business

It can be a daunting task to sift through all the lenders out there before settling on the right one. At Credibly, we can help take the guesswork out of choosing the ideal lender to work with you.

Contact Credibly today for all your modern business funding solutions! Or to get started, fill out our online pre-qualification request form. It’s free and easy and won’t hurt your credit.

Get Started with The Right Small Business Lender

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We understand that you’re more than a credit score and we look at your business’s potential.

At Credibly, we’re not just a lender. We’re your partner in growth. Let us help you bring your business dreams to life.

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