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10 Factors to Consider When Evaluating a Business Loan Offer
September 08, 2021
14. What to Consider Before Accepting a Business Loan Offer-06

10 Factors to Consider When Evaluating a Business Loan Offer

Once you receive a business loan offer, you may be tempted to accept it right away. Before you sign on the dotted line, however, there are certain factors to consider.

These factors can help you determine if it’s the right loan program for your unique situation. By taking the time to truly review the loan offer, you may save money and avoid roadblocks down the road.

In this blog post, we’ll review 10 factors to consider before you accept a small business loan offer.

What to Consider Prior to Accepting a Business Loan Offer:

1. The Lender’s Reputation

Not all business lenders are created equal; some lenders who may seem to offer the best business loans are quite risky. Here are some red flags that you should lookout for when applying for a small business loan from an alternative lender:

  • The lender doesn’t require a credit score check or have a minimum credit score requirement.
  • The lender lacks a physical address and doesn’t have a professional website.
  • They hides their loan fees, making it unclear how much their financing options will cost your business.
  • The sales rep pressures you to accept the business loan offer immediately.

Instead, we suggest choosing a lender with positive reviews and a high rating on the Better Business Bureau (BBB).

2. Loan Type 

Fortunately, there are many types of business loans on the market, including popular funding options such as:

  • Traditional term loans
  • Business lines of credit
  • Equipment financing
  • Merchant cash advance
  • Business credit cards
  • Invoice financing
  • Small Business Administration (SBA) loans

Before accepting a business loan offer, make sure that the type of loan fits your unique financing needs.

3. Collateral Requirements

Some business financing lenders offer secured loans, which means in order to qualify for a business loan, you’ll have to back the loan with collateral. Therefore, in the event that you default on your loan, the lender can seize your collateral as a result.

If your business loan offer requires you to secure the loan with collateral, consider whether you want to risk losing an expensive asset. If not, an unsecured loan may be the best funding option for you.

4. Loan Repayment Terms

Take a close look at the repayment terms on your loan offer. Ask yourself whether the monthly payment fits comfortably with your budget.

If you think it will be difficult to afford the payments or you’re worried about missing payment deadlines, look elsewhere for a business loan product. Late and missed payments as well as default can lead to financial stress and take a serious toll on your credit.

5. Payment Process

The payment process is just as important as the repayment terms. Make sure you understand the lender’s requested payment process. Will you pay back your loan via weekly payments, monthly payments, or bi-monthly payments?

You should also find out how you’ll make the payments. If the lender requires automatic withdrawals and you don’t feel comfortable with that, you may want to pursue a different business loan offer.
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6. Borrowing Amount

Just because you receive an offer for a certain loan amount, that doesn’t mean you should accept it.

Once you determine how you’ll utilize the funds, you should decide whether it’s enough money, too little, or too much. If it’s not enough to accomplish your goals or you believe you’re overextending yourself, find a loan with a different borrowing amount.

7. Interest Rates

The interest rate you lock in will determine the overall cost of your small business loan. Of course, the lower the interest rate, the more money you’ll save and the more affordable your loan will be. Do the math and figure out how much your loan will cost with the interest rate you receive.

Also, look at the rates others may lend you based on your credit score. You don’t have to settle for a sky-high interest rate, especially if you have decent credit and have been in business for a while.

8. Loan Fees

In a perfect world, small business loan fees wouldn’t exist, making them more affordable for the borrower.

The reality is that even what seems like the best business loan may come with exorbitant fees, including:

  • Origination fees
  • Processing fees
  • Non sufficient funds fees
  • Late fees

Once you receive a list of loan fees from you lender, add them up so you can fully determine how much the financing will cost you. You may find that there are too many fees or they add up to a substantial amount you don’t want to pay.

9. Funding Time

If you need funding as soon as possible to buy inventory or equipment, for example, ensure that the lender can distribute them quickly.

While some lenders pledge to fund borrowers’ accounts 24 hours or a few days after approval, others are slower. If a loan lender usually takes a few weeks or even months to deposit the funds, you may want to consider an alternative option

10. Customer Service

At some point, you may want to ask your business lender a question or voice a concern. Therefore, it’s important to look into the lender’s customer service options. For instance, determine if they offer customer service through phone, email, or chat.

Or are there customer service representatives only available during regular business hours by phone? It’s also smart to read reviews related to customer service so you get an idea of how the lender handles issues and disputes.

Conclusion: Weigh Your Options Before You Accept a Business Loan Offer

It’s important to remember that you don’t have to accept a small business loan offer immediately. In fact, it’s important to take your time and decide whether it’s a good option for your particular business’s financing needs.

If you take time to consider all of these factors, you’ll be able to choose the best business loan offer for your company.

Once you receive additional financing, you’ll be able to invest in your business’s products and services, customer service, and overall operations. We hope that this post allowed you to evaluate your business loan offer or potential financing plan!

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].