Nearly every entrepreneur faces the unpleasant process of borrowing money. Some are fortunate and comfortable enough to ask family or friends for cash while others prefer to avoid this step. Many people just aren’t comfortable borrowing money from their loved ones because it often involves an awkward conversation and the potential for an unpleasant payback process.
Fortunately, an entire industry is built on providing small business owners with a loan. The explosion of financial technology companies in recent years jumping into the lending space means entrepreneurs have more choices than ever.
But this doesn’t mean that the process is easy. There are several steps required first before learning how to compare unsecured business loans. Before even thinking about what lender to do business with, it is important to first identify the unique wants and needs.
Tip 1: Know The Business Needs
Before evaluating and comparing business loan providers, it is important to spend a lot of time to determine just how much money a business needs to borrow. This should be part of a business plan that incorporates all aspects of an enterprise’s financial needs.
Often business owners tend to overlook one area of their enterprise. For example, an owner could spend a lot of time figuring out how much it would cost to manufacture 10,000 units of their item but they could be guilty of oversimplifying the true marketing costs associated with pushing out the product.
It is just as important to consider future cash needs as well because this could impact the borrowing process. If a business needs access to $4,000 immediately and another $6,000 in a month, this could open up new doors. Some of the small business loan providers have minimum borrowing requirements so a full understanding of all the enterprise’s needs in advance is crucial.
Tip 2: The Best Small Business Loan Provider Isn’t Necessarily The Cheapest
The best small business loan provider isn’t necessarily the one that offers the cheapest rates. Such is true for pretty much all transactions. If someone is looking to go out to eat a meal and cost is the only consideration then McDonald’s or any of the fast-food joints will fit the bill.
But if they are looking for an upscale experience with personalized service then clearly the cost is not near the top of the list of priorities.
Some online lenders are known for providing bespoke financing solutions. They will work hand-in-hand with an entrepreneur to create custom solutions that would not be ideal for another business.
Now is the time to understand exactly what an entrepreneur is looking for in a business loan. If the owner is financially savvy with expertise in managing debt then it would make sense to want the lowest cost loan. But not everyone is in this situation so it is important to understand what they are looking for before comparing unsecured business loan providers.
Tip 3: Understand What Is An Unsecured Business Loan
You might think now is the time to start comparing small business loan providers, but that will come soon enough. Now is the time to understand the different types of business loans that are available.
Typically, there are two types of business loans that would be offered to entrepreneurs. The first is a secured business loan. This means that the value of the loan is secured in the form of collateral stemming from an asset or future cash flow.
In other words, an entrepreneur enters into a legal contract whereby default of the terms of the loan means the lender will seize an asset. This could be anything that has value, ranging from equipment or a truck and real estate holdings for large loans.
But for many new entrepreneurs looking to take out their first loan, this isn’t necessarily an ideal or even practical option.
Instead, an unsecured business loan is a more likely route many will take. An unsecured business loan, as the name implies, is the complete opposite of a secured loan. The value of the loan is not guaranteed through an asset so the lender is entering into a riskier proposition on their end.
If the small business does not pay back the loan, there are still some legal courses the lender can take, including seizing assets. Even if the business owner doesn’t have any assets, being on the losing end of a legal battle could have long-lasting repercussions.
So, at this point, it is worthy to double-check and triple-check a loan amount before moving on to the crucial step of comparing unsecured business loan providers.
Tip 4: Compare Unsecured Business Loan Providers
Now is finally the time in comparing unsecured business loan providers. As already noted, looking simply for a loan provider that offers the lowest rate might be the right strategy for a small minority of business owners. In this case, the comparison process for a small business loan can be completed in minutes as only one factor is up for consideration.
For the rest, it is important to evaluate loan providers based on a handful of criteria, perhaps the most important of which are any minimum and maximum requirements. After all, it is a waste of time comparing a loan provider whose minimum lending amount is above what the business needs to borrow.
After compiling an initial list of loan providers including those from big banks and financial technology startups, it is important to take time and research if a lender focuses on a particular niche. Some unsecured loan providers cater towards large and more established small-and-medium-sized businesses while others focus on a specific industry.
The list of loan providers at this point will be smaller after eliminating loan providers that aren’t a good fit. Now it is time to reduce the list even more by filtering for more unique characteristics that vary from person to person.
For example, if customer support is near the top of the priority list then look for loan providers that offer online chat, phone, and email support. Some borrowers place a lot of emphasis on reputation so searching for loan providers with many online reviews is the next logical step.
Now that the list is even smaller, it might be time to finally make a decision on which loan provider is best for everyone’s unique wants and needs.
Tip 5: Plan On Repaying The Small Business Loan
Simply having a financial plan in place to repay a small business loan is half the battle. If a business owner knows in advance they will have trouble paying back the loan in the future it is imperative to reach out to the lender right away to discuss options.
Some of the more common tips in ensuring a loan is paid back efficiently include setting aside incremental or extra income. This can come in handy in future unforeseen circumstances or to perhaps pay off the loan earlier if such an option is available and makes business sense.
Most small business loan providers are open to working with the owner in setting up a recurring payment date. This avoids any possibility of missing a payment by accident.
Most important to keep in mind, prepaying a small business loan on time and in full is one of the clearest paths towards approval for a second loan in the future. Establishing a great relationship with a premier small business lender can lead to better rates as lenders prefer transacting with reliable entrepreneurs.