When you are looking for business financing, the need may be so immediate that you are tempted to jump at the first offer, like a pre-qualified line of credit offer that arrives in your mailbox. But lenders and loans vary considerably and finding the best financing for your business involves more than just taking what comes along or comparing a few interest rates.
Evaluating lending sources
Who you get a loan from can be just as important a consideration as what kind of loan you get. Consider these issues when you’re assessing different lending sources:
· Accessibility: You may be able to find a loan on a toll-free hotline, through a Web site, or with a business credit card, but the convenience could cost you through higher upfront charges or a higher interest rate. And who will you talk with after the ink is dry and a problem or additional need comes up?
· Wide range of capabilities: Your financing needs may be simple and relatively easy to satisfy now, but in the future you could need more sophisticated financing services for challenges like a major expansion or change in direction.
· Sizeable resources: A successful company can grow more rapidly than you expect, and the need for financing support will expand with the business. You can’t afford to be limited by your lender’s size, lending limitations or lack of knowledge about your business.
· Balanced credit decisions: You’ll want a lender who can take into account your total picture, including all of your business’s assets and potential. A lender with an in-depth understanding of your business can look past temporary aberrations to make informed decisions.
· Commitment: The movement of interest rates and the relative health of market sectors can make lenders eager to offer cash one moment and reluctant the next. You want a lender committed to supporting the small- to midsize business market, regardless of the fluctuating economic climate.
Gauging loan flexibility
It is also important for your lender to have enough flexibility to adapt your credit terms to your business’s individual circumstances. You don’t have to settle for a one-size-fits-all program that, in the long run, could hinder your progress. Your financing program should accommodate the amortization terms, prepayment and reborrowing conditions, rates, range of usage and loan configurations that fit your needs.
For example, a conventional term loan may be appropriate for your medium-to-long-term credit needs, such as financing an equipment purchase or real estate transaction. However, what if your company has periodic high cash balances? Could you use these to prepay your loan and reduce interest costs? If you prepay your balance, could you reborrow those funds to finance other needs as they arise? Not all companies have the same cash flow profiles and not all need the same loan features.
By taking the time to assess your company’s situation and evaluating the lending options available to you along with the characteristics of the lender, it may be possible to choose a loan that’s flexible enough to meet your current and evolving needs.