7 Questions to Ask Potential Small Business Lenders

7 Questions to Ask Potential Small Business Lenders

When looking for financing, most small business owners know that lenders will ask a lot of questions about their businesses. What they may not consider, though, is that they should also be asking lenders questions.

Ideally, a lender will be an advocate for you and your business. To ensure you make the best decision, you’ll want to interview them. The answers you get will make the most of your valuable time and will point you in the right direction for your funding needs.

Key questions for lenders:

1. What type of lending do you specialize in?

While most small business lenders will work with all businesses that meet their approval criteria, some lenders focus on specific industries. For example, a lender that specializes in lending to technology-based businesses will likely not consider approving a loan for a restaurant.

Before you go any further with a lender, ask if they fund businesses in your industry. If you get a “no,” it’s best to move on. If you get a “yes,” great! And a “not usually, but sometimes”? That door’s potentially still open, so ask a few more questions to see if it’s a good fit.

2. What are your eligibility requirements? 

Lenders often have a set of criteria that businesses and owners must meet to be eligible. These include industry type, time in operation, cash flow, credit score, revenue, debt-service coverage ratio, collateral available and more.

When meeting with potential lenders, find out if your business meets the minimum criteria. The answer to this question should play a primary role in your decision to move forward with a prospective lender. And if you don’t meet the criteria, ask if they make exceptions. If they do, find out what those exceptions are based on and figure out if you can meet these requirements by making a few tweaks to your application, business plan or financial projections. Knowing this information can strengthen your position if you decide to apply.

3. Which of your loan products would be best for my business needs? 

From SBA loans to lines of credit, small business lenders often offer a wide variety of loan products.  When meeting with lenders, it’s important to understand the differences between their funding products and which would work best for your business needs.

Additionally, find out if they have any special loan programs for businesses in specific industriesor locations, and if your business aligns with them. For instance,  we have a variety of special loan programs, including our reduced-interest rate veteran loan program and our special loan fund for minority business owners in the South Bronx.

4. How long is the approval process?

Every lender has a different application, approval and funding timeline. Many alternative lenders will review your application in a few days and offer funding within a week. While lenders with stricter criteria, may take a few weeks or even months to approve and fund a loan.  Before moving forward with a lender, understand exactly how long each of these processes will take. And if you have an immediate financing need, make sure to ask this question early so you can weed out lenders with long approval and funding processes.

5. What are the interest rates and the total cost?

Before you sign any paperwork, ensure you know the total cost of your loan in addition to the interest payments. Be sure to ask about upfront fees, such as origination fees, broker fees, etc. You don’t want to go through the entire loan process, get approved and find out you owe a high closing fee on top of your loan payments. 

6. What is your payment plan?  

Before you agree to anything, you’ll need to find out how you’ll actually pay back the loan. While some lenders still accept payments by paper check, many lenders have turned to automatic debits from a bank account. Make sure that you’re comfortable with the process and able to complete it easily.

It's also important to make sure you’re comfortable with the lender’s repayment plan. Some lenders will ask you to make larger payments on a monthly basis, while others will take out smaller amounts on a daily or weekly basis. Whatever lender you choose, make sure that you will be able to stick to their repayment schedule.

While you’re at it, ask what would happen if you find yourself paying off your loan earlier than expected. Some lenders will penalize their borrowers for repaying their debt too early. If possible, you want little to no prepayment penalty from your lender, so make sure you know the rules before closing the loan .

7. Do you offer any business counseling?

Some lenders provide additional technical assistance to help you prepare loan applications and ensure that you have the support you need, including educational assistance on financial management, marketing and more.

Every interaction with a lender is an opportunity

Know this: Responsible lenders will always want you to ask these questions and will be impressed that you did! Any lender that isn’t upfront with answers is likely not one that you want to do business with anyway.

We provide funding, education and more to support small business success. Contact us today.