5 Tips for Business Owners to Borrow Money With Confidence

With so many loan options available to businesses, selecting the correct one can be challenging.

When you’re ready to borrow money for your business, it’s vital that you feel at ease with the lending procedure. When selecting which bank or financial institution to borrow from, it’s about finding the best overall match for your company, not just receiving a loan.

It is crucial to examine your options in order to choose which lender can assist your business today and in the future. Here are some pointers to help you shop and apply for a business loan with confidence.

1. When you meet with lenders, ask questions and take notes.

You can compare options by maintaining a log of your interactions with potential business lenders. Take notes during each meeting, even if it is online, and include details like:

• The interest rate as an annual percentage rate (APR)
• Understanding closing costs
• Any fees that may be charged on an annual basis
• The lender’s capacity to provide ongoing assistance and expertise in commercial banking, including relationship management

You can also ask questions such as:

• Do you lend to businesses in my industry? Many lenders specialize in certain businesses or have specified industries with which they would not work with. By asking this question early on, you can avoid spending time with a lender who will be unable to assist you regardless of your creditworthiness.
• Do you offer a loan term that fits my business needs? Because you’ve determined your loan purpose (your business need), you’ll be able to determine whether you’re searching for a short-term or long-term loan and will be able to identify loan types that may not be a good fit.
• What are the interest rates and the total cost? There is a range of pricing and comparison tools available to assist you in assessing and comparing financing options. APR (Annual Percentage Rate) is one approach to compare loans, but it should be used in connection with the total dollar cost of the loan
• What will my payment schedule be?
• When is my first payment due?
• How do I make my periodic payments?
• How long will the loan application process take?
• What is your Better Business Bureau (BBB) rating? This is not the only means to learn about how a firm operates, but it can provide insight into how they handle and resolve issues. Visit a review site or two, such as Trustpilot, in addition to the BBB, to discover everything you can about the lender.
• May I speak to a few of your current and past customers? You will most likely be speaking with a number of successful customers, but it may be worthwhile to speak with one or two of them, review any customer success stories they may provide, look for client testimonials, and even search online for reviews. Are the majority of the reviews positive? Do the same worries keep coming up? If something seems out of place, don’t be afraid to inquire about it. And, if the lender is unable to address your issues, don’t be scared to search elsewhere.
• Do you report my credit history to the business credit bureaus? If they don’t report, your good credit behavior with them won’t help you establish an even stronger business credit profile. Some lenders, such as merchant cash advance providers, do not. Don’t assume the lender you’re talking with does, either. When seeking for a business loan, this should be a major concern.

2. Be on the lookout for loan fee scams.

There are normally no upfront fees associated with applying for a business loan, and you should avoid lenders who charge you to fill out an application. Reputable banking institutions provide free online applications to businesses.

When you apply with a bank or another reputable lender, you should be assigned to a relationship manager who can help you with the application if necessary.

Working with a loan broker is another option. A reputable loan broker will normally work without charging you any upfront fees and will instead be paid a commission by the lender. When choosing a loan broker, do your research to determine their reputation – a good place to start is to verify their physical company address and speak with them. Your accountant can also be a valuable source of information and even referrals.

3. Avoid having too many queries on your personal or corporate credit score.

Multiple credit inquiries will lower your credit score, but you can obtain your business and personal credit scores by contacting the credit bureaus directly or obtaining a copy of your credit report—you can obtain a free copy of your personal credit report once per year. Requesting a copy of your credit report or checking your credit score is not considered a “hard inquiry,” thus it will not harm your credit score.

When you apply, lenders will get your credit report, however, you can use a credit report/score you pull to get an idea of interest rates before you apply. After you apply and receive a loan offer, the lender will inform you of your potential interest rate.

Remember that after you’ve decided to apply for a loan with a lender, you only need to give them permission to obtain your credit score at that time.

4. Don’t rush into applying for a business loan; take your time.

Because acquiring a business loan builds a long-term relationship with the lending institution, you should work with a lender that immediately puts you at ease.

Avoid working with a lender who pressures you to do anything you don’t want to do, such as apply for a “loan special” or an offer that “can’t be passed up” before a certain date.

In these circumstances, having a few key lines written down and practiced ahead of time may be advantageous. “I’d like to review all of my options before following up with you,” you can say.

It’s also worth noting that applying for a loan all at once is unusual. So, unless you’ve done extensive prior research, you can schedule 2-3 appointments (or more) until you’ve received answers to all of your questions. To help you improve your application, learn more about how a bank examines a small business loan request.

5. Obtain a second loan quote from a different lender.

Many borrowers who are in urgent need of a loan are tempted to go with the first institution that will lend to them, but having a second option is crucial. Even if you’ve had a long relationship with your bank, double-check that they’ve provided you with a competitive offer.

Getting quotations from at least two different banks or other lenders may help you ensure that you are getting the best rates and fees available.

Overall, when it comes to borrowing money for your business, it is well worth your time to choose the right loan and lender. Keep these tips in mind as you investigate your options so you can feel comfortable borrowing money to fulfill your company’s goals and objectives, and don’t be hesitant to seek expert guidance on the best move to make for your unique business.