Finding a lender for your business loan

Knowing that you need a business loan to start your business is the first step. The second step you must take is finding the right lender for your business loan. Normally business owners will contact a bank they already work with, whether this is for your personal checking account or your car loan. Find a bank that you already have worked with, it will help you determine their reputation.

Banks typically have better rates on commercial loans than credit unions and other types of lenders. The only bad thing about using the bank as your lender is that they usually have harder restrictions on who they will lend money to, especially in a bad economy. Normally a bank will require more collateral, a co-signer, and an excellent credit score along with a good track record. Some banks won't approve a business loan to an individual that has a credit score below 780 while a credit union will consider dropping below 720.

On top of harsh restrictions, most banks do not like to lend money to a company that has been in business for less than 5 years. This is because small businesses tend to fail and declare bankruptcy. The banks tend to lose out on most of their investment in the business so they have become picker in the recent past.

To figure out which lender you need to use, determine which type of business loan will fit your needs. Perhaps you need an unsecured loan over a secured loan. Secured loans are offered by independent lenders mostly because they require some type of collateral in order to obtain them. The lender wants to make sure they can collect their money from somewhere if you default on the loan. An unsecured loan is offer through banks and other types of lenders, but you will not be able to borrow as much.

Newer lenders are more likely to take on risk, so it is a good idea to search for new lenders in your area. They are willing to look into financing a start-up or offer a large loan to a business that has been around less than 5 years.

If you find yourself struggling to get approval from a bank or another lender, contact a business loan broker. The broker has access to different lenders and they will be able to review your financial information and talk about the different types of business loans you qualify for and which lenders they can work with to help you get the financing you need. Brokers have established relationships with these lenders so they can get you a loan that you probably couldn't get on your own. If you use a broker, be prepared to pay for them. Brokers charge pretty high fees, but they may be your only hope if you find it hard to obtain a business loan.

Since the recession, lenders are hesitant to take on risk. If you really want to obtain the loan, be prepared to offer up some type of collateral or find a good co-signer. Consider looking at larger lenders if you need a loan that is greater than $100,000. Smaller lenders just can't afford to take on this amount of risk and they have tighter restrictions on their applications.

Do your research about the different lenders to find out what type of loans they specialize in. Companies that deal with mortgages and leasing are better equipped to invest in the real estate aspect of your business while a company that primarily issues lines of credit can help with the purchase of new equipment. Ask some of your business associates which lenders they have used, this will give you a good idea about the type of risk this lender is willing to take on.