Getting funding for your business can be a complicated process. But there are more options now than ever before.
If you’re thinking about seeking out an alternative lender for your business, there are plenty of considerations you’ll need to make and questions you’ll need to ask, both of yourself and of your potential lenders.
Here are some tips and questions to help guide you through the process of finding an alternative lender for your small business.
What Type of Lender is Best for Me?
The very first thing you should consider when seeking an alternative lender is what type is likely to be the best fit for your business. Rohit Arora, CEO of Biz2Credit, offered three main types of alternative lenders that you might consider.
First is a marketplace lender, like Biz2Credit, which offers a variety of different lending options that customers can potentially choose from. There are also Direct lenders like OnDeck and National Funding, which offer working capital loans, and specialized lenders like Kabbage, which works with online retailers.
Will this Lender Work with my Business?
Because some specialized lenders only work with specific types of businesses, you can rule out the ones that don’t fit with your industry or business model. Then you can take a closer look at any of the requirements listed on the lender’s website or other materials to see if it’s even an option that you should look into further.
What Different Options are Offered?
For marketplace lenders like Biz2Credit, it can help to learn about some of the different options that might be available to you before applying, so that you know what might actually be a viable option.
How Much can You Loan my Business?
Once you narrow down your options a bit, it’s time to look into the details of a loan program. One of the first things you’ll likely need to find out is how much you can get from a lender. Then you can decide if that is enough for your needs.
What Type of Loan is it?
You should also find out the type of loan so that you can be sure it’s something you’re likely to qualify for and be able to pay back in the time allotted.
What is the Length of the Loan?
The length of the loan is another important consideration. You need to make sure that it’s enough time so that you won’t be strapped for cash in order to pay it back on time, while not being so long as to keep your business in debt for the foreseeable future.
What is Your Rate?
Of course, the interest rate you receive will pay a big part in how you configure your payments and the plan surrounding your loan. You’ll want to find the lowest rate possible, while still keeping a reasonable payment schedule. So look into some comparable rates before signing on with any one lender.
How do You Accept Payment?
You’ll also need to find out how you actually pay back the loan. Do they come out of your account automatically or is there more involved? Make sure that you’re comfortable with the process and able to complete it easily.
How Often do You Accept Payment?
Some loans will take out large lump sums on rare occasions, while others take out smaller amounts daily or weekly. The plan that you’re most comfortable with is up to you. Just make sure that your lender offers the type of payment plan that works with your payment preferences.
Will this Payment Plan Work for my Business?
When you’ve learned all of those factors, you should be able to come up with a general idea for how long and how much it will take for you to pay back your loan. Then you just need to ask yourself if that’s a plan that will work for your business.
Arora said in an email to Small Business Trends, “They should look for an ideal loan amount for their need, the lowest rates, a pay back period that makes sense for their finances and a comfortable payment method (meaning daily or monthly debits or a lump sum).”
Are There any Payment Penalties?
Most loans will have some kind of penalties for late payments. But some may even come with penalties for early ones. Make sure you know the rules before signing on with a lender.
Can I Pay Off the Loan Anytime?
If your business performs better than expected and have some extra cash, it may be beneficial to pay off your loan early. Just make sure that your lender allows early payments and won’t charge you a penalty for paying it off early.
Will this Loan Impact My Credit?
Different types of loans may have different levels of impact on your business’s credit score. Ask your lender or do some research on the types you’re considering before you actually apply.
What Happens if I Can’t Pay it Back?
In the unfortunate even that you aren’t able to pay back your loan, you need to know what the penalty is and what the lender may be able to go after. This may vary depending on things like collaterol and leins. Just make sure that the penalty is something you can live with should anything unexpected happen.
What Happens if I Need More Time?
Or, you could encounter a situation where you are still able to make payments on your loan, but aren’t able to pay it off fully in the time allotted. Ask your lender if they offer any refinancing or restructuring of plans over time to accommodate businesses that need a bit of extra time.
How Can I Apply?
Many alternative lenders offer a simple application right on their website. But you can ask if there’s anything else involved or anything else you should do to make sure the process goes smoothly.
How will the Application Impact My Credit?
However, Arora cautions against just applying for any alternative lending program in sight, since completing a lot of applications can negatively impact your credit. So do your research first and only apply to the ones that really appeal to you and seem viable.
Do I Really Need Additional Loans?
In addition, Arora said that some lenders will make additional offerings that can overload businesses with a lot of debt. So ask yourself if you really need it before accepting any type of funding.
What Type of Service is Offered?
You should also make sure that there’s some sort of customer service program in place so that you can get your questions answered or rectify any issues you may have. Ask about those processes before signing up so that you can make sure they work for you.
Where can I Learn More about These Lenders?
Even if a lender seems great on paper, other businesses that have dealt with them may have different things to say. Arora recommends looking up lenders on sites like Trust Pilot so you can see what others who have used them have to say about things like pricing and service.