Think of finding the best lender for your small business loan like shopping for a phone. When you purchase a new smartphone, you have size, cost, color, brand, and speed options. But buying the perfect device starts with your needs. If you need a durable, low-cost option, it doesn’t matter what everyone else says is the best phone for games or AI. Your money should go toward the best option for you.
The same is true for your financing. You might consider the Small Business Administration (SBA), an online lender, a credit union, or even private lending for your small business. They are all good options. The difference between good and best is how well they match your needs.
Let’s evaluate four of your financing needs and how different lenders address those needs, so you can find a partner who understands your goals, offers fair terms, and smooths the process for you.
#1: How Fast Do You Need the Money?
Your funding plans include a timeline. You might only have a few days to take advantage of a supplier’s discount, or you might have planned ahead to add new equipment to your assembly line by next year. Getting the funds you need when you need them starts with considering your lender’s speed.
Traditional lending options are on the slow end of financing. SBA loans take several months, while banks and credit unions take several weeks. These lenders require detailed applications, extensive underwriting, and complete verification to offer the most security for your funds. Traditional lenders may be a good choice if you’re planning ahead and can afford to wait.
On the other hand, online lenders offer the speediest loan options. These companies have streamlined their application and underwriting processes so you can secure funds in days or even hours. If your financing need has a short and non-negotiable timeline, then an online loan for small businesses is your best option.
#2: How Solid Are Your Financials?
Your business has a unique financial profile from every other organization. You might be struggling in your third month running your coffee shop for dog walkers, or you could be expanding your auto-body repair shop after your fifth year of success. Your financial profile influences how lenders see your business and who is most willing to finance your venture.
If you have been in business for over three years, have a credit score of over 600, and can demonstrate consistent revenue through your documentation, your financial profile is solid enough for even the pickiest lender. You could qualify for small business loans from banks or the government-backed SBA, with the highest approval standards. You are also unique.
Not many small businesses meet all those criteria, so lenders have created alternatives that look at other aspects of your financial profile. Credit unions also offer a unique opportunity for financing. A local credit union, especially if you have been a member for some time, can provide you with funding even if you wouldn’t qualify through a national bank. These lenders still require good credit scores and more history than online lenders, but can be a good alternative to banks.
Online lenders offer the most flexibility in their approval standards. They evaluate risk based on six to twelve months of cash flow, banking history, and revenue. This flexibility makes them appealing to businesses with strong performance but limited credit or short operational history.
#3: How Much Can You Afford?
You control the amount you request to borrow, but the fees, interest rates, and repayment amounts depend on the lender and loan type. When shopping for the best lender for your small business, consider your financial limits. They may narrow your options.
Saving money on interest is one way to make your loan more affordable, either by shopping for the lowest interest rates or limiting the total interest cost. Banks, credit unions, and SBA lenders can offer rates much lower than alternative financiers.
The other way to save money on interest, calculating the total interest cost over the loan, is to choose shorter repayment terms. Online lenders, credit unions, and banks offer short- or medium-term business loans that can save you money in the long run.
Maybe you need to borrow $10,000 to update your salon. A bank may offer a five-year repayment period and 6% APR, meaning you will pay about $200 monthly and a total of $11,600 to repay the loan. On the other hand, an online lender may offer the same amount for two years at 11% APR. You would pay $470 monthly toward a total repayment amount of $11,100. The more affordable option depends on whether you need lower monthly payments or to save money over the life of the loan.
Another financial limit is how much you can afford to repay each month. Traditional lenders typically offer the longest repayment periods, which can reduce your monthly payments to very affordable amounts. However, they do not usually offer any flexibility with their payments. If you can’t afford the same amount every month, then fintech or online lenders are better options. These financiers provide more flexible repayment options.
Let’s take the same $10,000, but look at it for a seasonal business like lawn care. When your revenue is high during the spring and summer, you can afford monthly payments that would strain your budget in the winter. In that case, you may benefit from a revenue-based repayment plan that adjusts to your monthly income.
You might not pay anything in January when business is dead and pay $700 in July when you bring in more than $4,500. If you need that kind of flexibility, an online lender will offer more affordable options for you.
#4: What Are Your Loan Needs?
Like your financial profile, your funding needs can vary wildly from those of other small business owners. You might have a delicate situation with specific timelines, amounts, qualifications, and repayment requirements, or you might be open to many loan options. Consider how many financing products you need to choose from when finding the best lender for you.
Say you operate in a niche or fast-moving industry like the creative arts or commercial real estate. Credit unions and banks may not have the technology or underwriting models to match your needs. Traditional lenders tend to be more limited regarding loan variety, digital accessibility, and speed. Your best lender could be an online company specializing in small businesses like yours.
On the other hand, you may not need to explore various lending options like merchant cash advances or invoice financing. If a term loan is a perfect fit, shopping for a variety of financing tools could make your financing experience longer and more frustrating than if you worked with more general lenders. It all depends on what you need.
Key Traits of the Best Lenders
Once you’ve narrowed down your financing needs, look for lenders with these key traits. The best lenders in any category are:
Transparent
The terms, fees, and repayment schedules are clear and upfront. The lenders offer honest advice about their services and your needs.
Responsive
You can access real people to ask questions and get answers in a reasonable timeframe.
Experienced
The lenders have a history of working with small businesses like yours, and customers leave positive reviews.
Personal
They accommodate your needs rather than trying to force you to fit into their system.
Valuable
You benefit from working with their company in additional services like financial coaching or long-term lending benefits like lower fees.
Based on Your Needs
Finding the best small business loan lender is just as personal as buying the perfect phone. Your boyfriend might love his extra-large, high-speed device for games, while your grandma can’t move on from her no-frills, durable flip phone that doesn’t even receive texts. They won’t agree on the best option because they each have different needs. The same is true for your lender.
You don’t need the most popular or newest lender to get the best. You need a partner who understands your business and supports your growth. Take the time to understand which financial vehicle is the best fit for your business. Then, look for a reputable lender who will help you with that type of funding. Keep in mind that there are more options than just the traditional ones everyone knows about.