3 Questions Business Owners Have About Small Business Loans

  • August 8th, 2014
  • Burke Alder

Finding the right small business loan can be easier than you think, if you know the answers to 3 simple questions

For close to three years, I have traveled the country meeting with small business owners talking about the best way to get a small business loan. I’ve learned that most have three major questions:

1. Where should I go to get a small business loan?

2. How much do I qualify for?

3. How much will the business loan cost me?

Today, I’d like to discuss some of the best ways a business owner can get the answers to these questions.

lendio small business loans

1. Where should I go to get a small business loan?

As I have meet with hundreds of business owners from the east to the west coast, there is one major pain point they share with me in every meeting. They usually say something like, “It takes a lot of time to find a business loan. I would rather spend time working on growing my business.”

I feel your pain.

Karen Mills, former head of the U.S. Small Business Administration, just completed a Harvard study on the state of small business lending. In her research, she mentions that it takes a small business owner up to 26 hours to find a business loan and that business owners go to a minimum of 3 lenders during the process.

That said, the time it takes to find a loan isn’t the only problem. Only one out of ten small business owners who go to the local bank actually get a the business loan they’re looking for. So a business owner spends all this time searching without any success. There has to be a better way.

So let’s answer the question.

Where do you go to get a business loan? Many small business owners are turning to the Internet and taking advantage of technology.

lendio small business loans

This is where our mission at Lendio comes in. At Lendio, we use technology to match your small business to the best business loan options based on your answers to a few simple questions. We’ have partnered with what we consider to be the best lenders to provide all the available small business loan options in one place.

Now, instead of going bank to bank-to-bank or website-to-website, all you need to do is answer a few questions and see all your loan options in one place. You can try it for free here.

2. How much do I qualify for?

You would think this is a simple question to answer. Talking with business owners, I noticed there is definitely a miss-alignment on expectations. Many of them wanted more than they could realistically qualify for. So how much do you qualify for? It really depends on a few factors:

a. Time In Business

b. Monthly Revenue

c. Credit Score

d. Collateral

e. Profitability

        f. Other Factors (monthly deposits/credit card transactions, equity in a home)

It’s not easy to find easy-to-understand and accurate information about this criteria, so we’ve tried to make it simple.We use technology to take your answers to the questions above and match you to an amount you could qualify for. Once you complete the process, you’ll see the suggested loan amounts along with potential lenders. If you’re business struggles in some of these areas—for example you don’t have strong revenues or you have a bad credit score—it limits your available options.

3. How Much Will the Business Loan Cost Me?

The cost of business capital is typically defined by the interest rate and pay back terms. Like any loan, the more risky the business profile, the higher the interest rate. Most lenders measure risk by data points like your credit score, time in business, monthly or annual revenues, and any collateral you might have. So you could potentially see anywhere from a 6% interest rate on a loan for an amazing business profile, up to 25%,30%, or even more for a more risky business profile.

Typically the lower interest rate business loans have longer pay back terms and the higher interest rate business loans have shorter pay back terms.

So why would you ever want a high interest rate business loan? First, that might be the only option for you depending on your business profile. Second, you might need the money quickly and the opportunity to grow your business out ways the cost. Typically a low-interest rate term loan from a traditional lender like a bank takes weeks or months to process the application and underwrite the loan. Non-bank lenders are often able to process your loan application in a day or two—but the cost of capital is higher.

You might disagree, but I have seen it time and time again. Investing properly at the right time can help your business flourish and grow—even though the cost of the capital is more expensive.

Also, if you want to see the possible rates available to you based on your circumstance, you can start the process here.

After talking with hundreds of business owners across the United States and really feeling their pain about the challenges associated with getting a small business loan, I’m passionate about making the process easy to understand. I hope you’ll join me again for my weekly blog posts to understand the ins and outs of getting a business loan.

About the Author

  • Burke Alder

Burke is passionate about strengthening America through small business and entrepreneurial growth. He has spent over 20 years in the pursuit of learning, developing, and executing principles and strategies that drive high-performance and explosive business growth. Burke writes about business financing, leadership, marketing, teamwork, and productivity. You can follow Burke on twitter here.

Comments

  1. the biggest issue I have with this assessment, is that it has NO value to start-up businesses. Start-ups generally have limited “time in business’, little to no collateral, little to no current monthly revenue, and since they are ‘new’ a realistic credit score, and provable revenue just are not possible.

    The best one can hope for is projections, possibilities, and potential.

    As a start-up company, Silverleaf has had no end of ‘well if you had….” and “If….” with absolutely no regard to true potential.

    Mind you, I understand investors wishing for sure things; but the Golden Gate bridge wasn’t certain until it was BUILT. Neither was Hoover Dam; but both seem to have worked out just fine.

    Start-ups require investors with the ability and courage to see past today, to embrace the possibilities, and push towards tomorrow, rather than anchor themselves in what is already happening today.

    Start-ups are tomorrows profit