Just as certain types of loans are better suited for certain businesses, some lenders may be a better fit for your business than others. Consider these factors when choosing a small business loan:
Lender reputation. Check online reviews to be aware of any red flags or potential problems before signing on the dotted line. If you plan to work with a local bank or credit union, check with other local business owners to see which institutions are reputable.
Eligibility requirements. Most small business loans are personally underwritten and guaranteed based on the business owner’s personal credit score. The minimum credit score required to qualify for a small business loan depends on the lender and the type of loan. Therefore, it’s usually a good idea to check your personal credit score and research each lender to compare minimum credit score requirements.
Available loan amounts. Loan amounts vary by lender and loan type. Before choosing a small business lender, assess your business’s borrowing needs and look for a loan that fits those parameters.
Speed of underwriting and funding. The time it takes to process an application and receive funding varies widely by lender and loan type. Generally, it can take anywhere from a couple of days (for a business cash advance) to several months (for an SBA loan) to receive the money after you submit the application. If you need a loan quickly, choose a loan type and lender that meets those time constraints.
Annual percentage rate. APRs vary by loan type and lender, but typically range from 5% to 99%. Applicants with more credit are eligible for lower rates, but some lenders are more competitive than others.
Additional costs. Many lenders charge an origination fee, which covers the cost of processing applications and making loans. Similarly, some lenders charge prepayment penalties to borrowers who decide to pay off their loans early, while others charge credit line withdrawal fees. However, borrowers should not be charged application fees, and any fees charged before loan approval are a red flag.