Here’s the secret to navigating the finance industry as a small business owner: lenders and banks don’t tell you what they don’t do.
This is true of all businesses and service providers, and it’s no different in the finance world. Anything else is just bad marketing.
Many owners of new or underserved businesses don’t have personal experience applying for more than a credit card, and often they are turned down because they applied to a lender or bank that doesn’t provide the kind of loan they need. Knowing that you have to ask, and knowing what to ask, will help you identify the right lender, faster, when you’re ready to grow with the help of a small business or SBA loan.
Why it’s important to research a small business lender before applying
For the sake of argument, think of a small business loan like any large purchase. You have to do your research to find the product that will fit your needs and your means.
Say, for example, an owner of a sole proprietor business tried to prequalify for a loan to support a new marketing campaign, and she started at the bank where she does her personal banking. She has a relationship with the bank and has reasonable credit, but she got turned down. It wasn’t her business credit, it was because the only loans that particular bank does are residential mortgages and auto loans. What she needs is not what they do, so she just spent time and submitted her business data to a bank that can’t help her no matter how excellent she is.
But there’s no sign on the door or website that says, “no business loans”.
Or say the owner of a new home-based business wants a commercial real estate loan to open a physical location. He has a solid credit history and cash flow, but when he applies online for a loan he is turned down. The lender he chose only funds established businesses, and because he’s been operating for under two years, he’s considered a startup.
But there’s no sign that says “we don’t do startup financing”.
5 questions to ask a potential lender
To find a small business lender where you’re most likely to be approved when you’re ready, you have to do some homework. But to do that homework, you have to know what questions to ask.
These may seem simple, or even obvious, but most new business owners don’t ask these questions before starting.
The other benefit of asking is finding out how responsive the lender is customer questions, which is important for new borrower as well. If they don’t provide a way to ask these questions, or you don’t get a response, that is not your lender.
- Do you provide small business loans?
If this isn’t made clear on the lender’s website, ask. You also should know if you are looking for a small business term loan, SBA loan, or a line of credit.
2. Do you fund businesses like mine?
Several factors define your business in the lender’s eyes, and many lenders only lend to certain kinds of businesses within these categories. Define these key details about your business for yourself and for the lender:
- Time in business – Established business, or startup
- Business structure – Corporation, sole proprietor, nonprofit, etc.
- Business location
- Industry
- Use of funds – What will the loan be used for?
3. Do you provide loans in the amount I need?
Reputable lenders have a range of amounts they offer. If you need $75,000 and you apply at a microlender, you’re going to get turned down quickly.
4. What is your minimum credit score?
You can check your credit score for free once a year at AnnualCreditReport.com.
5. What documents will I need to submit?
If the answers to the first four questions tell you this is the lender you’re looking for, it’s time to make sure you’re ready to apply. Responsible lenders ask for financial documents to back up every piece of information you provide. The more you have ready before starting the process, the faster the process will be.