Choosing a commercial lender
Almost any commercial lender can provide funding for a profitable company with 10 years in the business. However, if that describes your situation, you won't need much help in finding a lender! More common are small businesses that want to grow or companies facing some business challenges they need to overcome.
Unfortunately, some banks just don't make an effort to reach out to small businesses. Others might not want to take a risk with a less established company or be able to handle the size loan you need. However, there are commercial lenders out there for almost any type of loan - it's just a matter of finding them. It's important that you evaluate prospective lenders just as carefully as they're evaluating you.
The right type of loan
Each financial institution will focus on different types of loans. Some prefer to focus on real estate loans: mortgages and leases. Others may emphasize equipment loans or ongoing lines of credit.
Each commercial lender will have a different attitude towards risk, as well: more conservative commercial lenders such as banks will avoid riskier loans, while other lenders may take on more risk as part of their philosophy. Deciding what type of loan you need and honestly evaluating your situation can help you choose the right type of commercial lender.
The right size
Rarely are commercial lenders too small for small to medium sized businesses. If they don't have the cash to handle your loan directly, they may break it into smaller chunks and have other lenders take on parts of the debt. This doesn't usually affect the total costs of the loan - the broker works out the fees with the participating banks.
On the other side of the coin, if a bank is too large, you run the risk of getting lost in the shuffle. You'll want your questions regarding the details of a loan to be answered thoroughly and in a timely fashion, and sometimes, large banks are not able to provide such service to small businesses.
How well do they know your industry?
If the commercial lender has a good understanding of your industry and how your type of business works, it can be much clearer to them how the loan will be repaid. If, however, they don't have any experience with your industry, they may be wary of your ability to pay them back.
Even if they're not familiar with your business, don't give up. Take a little extra time to answer their questions and clarify any misconceptions they may have. The better you can explain your business, the more confident they will be in your plans to pay them back.
A trustworthy partner
There are less-than-reputable firms out there who will try to take advantage of businesses in need of quick cash. In addition to checking references (see below) and with the Better Business Bureau, you should look for a lender who will act like a partner. Instead of treating you like a faceless account, they should take the time to answer your questions and help you through rough spots, instead of calling your loan or bumping up your rates the first time you're late with a payment.
A standard approach to evaluating any business purchase decision is to check references, and this applies to loans, as well. Have your prospective lender give you contact information for four or five references, preferably businesses similar to yours in size and industry.
When you speak to them, ask questions such as these:
- Did the commercial lender treat you fairly?
- Did you get the entire amount you needed?
- Did the commercial lender provide help on your application and paperwork?
- Have you had any trouble making loan payments? If you did, how did the vendor react?
- Would you work with this lender again?