How to Select a Lender

It’s true that small businesses need to cut costs
wherever and whenever possible, but searching out the
lowest rates for a business loan may mean that other,
more important issues are overlooked.

by Jeffrey Moses

NFIB.com

It’s tempting in today’s economy to be attracted by low
rates. Many banks are now offering loans with rates
that are at or near record lows. However, a small
business needs to look at the long term when
establishing relations with a lender. When discussing
financing, consider the following:

1. Can you establish a long-term relationship with the
lender? It is vital that a small business be able to
secure funding whenever it needs it — and without
having to make elaborate presentations. The only way to
do this is to work with lenders who have a history of
lending to small businesses such as yours, and who take
a visible, personal interest in the success of your
business. If a lender expresses little interest in
making a loan — or even in examining your business
plan and loan presentation — don’t press it. Be
grateful that you learned early that the lender might
be difficult to work with.

2. Will the bank tack on extra charges or fees, making
the effective interest rate higher than stated? Banks
today make a substantial percentage of their revenue by
charging fees. In terms of business loans, these may
include requiring that you keep an offsetting balance
in your account throughout the loan period (thereby
tying up some of your cash and effectively increasing
the loan rate); charging service fees and requiring
that you keep all your business accounts at the bank.

3. Will the lender give you all the money you need?
Many lenders attempt to cut loan requests in half, or
by a quarter, basing their decision on the rationale
that you can get by on less than what you’re asking.
When you encounter this argument, consult your business
adviser and see if the lender is right. If not, go to
another lender, even if the interest rate offered by
the first lender is the lowest in town.

4. Will the lender issue a loan without demanding your
personal guarantee? A personal guarantee of funding can
put at risk assets such as your home, car, insurance
and savings.

5. Do you feel comfortable with the bank as a whole,
not just with your loan representative? If your
relationship with the bank is solely with one person,
how would you feel working with the bank if that person
left, was promoted or if your loan was reassigned?

6. Will the rate on your loan fluctuate? Rates may be
low today, but you may have to pay more if prime goes
up (and it will, eventually).

7. Will the lender become overly involved with your
business? That’s not what you want in a lender. You
want your loan rep to lend you money, consult with you
when asked, and allow you to manage your business. As
long as you make timely payments, lenders should not
insist on knowing or making suggestions about private
details of your business — such as salaries of
employees, supplier relationships, etc.

8. Does the lender have a good reputation among other
small businesses in your area? Before meeting with a
lender, ask around about how well others have been
treated.

9. Does the bank continue to offer excellent service
and accessible funding after you’ve been working with
them for a while? If you’ve established a good record
of accomplishment, and have been paying back your loans
on time, receiving additional funding should be a
relatively easy matter, not a frustrating,
time-consuming experience. If your lender suddenly
starts making you jump through hoops, it may be time to
start shopping around.

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