Intimidated by New Business Loans?
Of the estimated 28 million small businesses in the U.S., about 600,000 are denied loans every year. Their reasons for seeking those loans differ widely, though as many as 23% cite poor sales as a cause. It’s little wonder that new business owners are intimidated by the loan process. New business loans are notoriously difficult to obtain, especially if you’re not selective about lenders.
Many small business owners allow themselves to be intimidated by lending companies, ultimately agreeing to unsuitable terms or outrageous fees. Here’s a secret: You have more power than you think. Lending companies want your business, so pay attention and choose one that provides support and fair terms. If you’re getting ready to put in a small business loan application, ask these questions first if you want to avoid new business loan turmoil.
Are You a Broker or a Lending Company?
Brokers are third parties who connect borrowers with potential lenders, collecting a commission. It can add extra costs to your funding, though it might help you find a lender you wouldn’t otherwise have found.
Direct lending companies work directly with the business owner, removing the commission cost. Some of the best lending companies function in both respects, providing direct lending when it’s appropriate and making other recommendations when necessary.
Will You File a UCC?
Lenders usually file Universal Commercial Codes to protect their interest on your funding. That can cause trouble for you in the future if you seek additional funds, merchant cash advances, credit lines, or equipment leases. Liens are ranked in the order in which they’re filed, increasing the risk that lenders won’t be reimbursed if something goes wrong. They’re also static and will always reflect the initial amount you borrowed.
How Can I Use the Money?
Some new business loans come with limitations on how you can use the money. Usually, businesses intend to use the money for specific needs, but when unforeseen circumstances occur, they are unpleasantly surprised to learn that they can’t use loan money to manage them. Be sure to ask about any restrictions before accepting an agreement.
Applying for a new business loan can certainly be nerve-racking, but it’s much more manageable if you remember that you’re in control. Ask the right questions and find a good fit for your business — the right lender is out there.
