Choosing the right lender makes a big difference to the success of your business. But with so many different types of lenders out there, it can be hard to know where to start.
Why you should understand each type of lender before you apply for a business loan
There are a few reasons why you should understand different types of lenders before getting a business loan:
Some lenders will understand your business better
It’s important to pick a lender that gets your business and its financing needs. Different lenders specialise in different types of loans and industries. Traditional banks tend to fund businesses that are well-established and can prove that they can pay back a loan easily.
If you’re a start-up or new business, you might be sure of your business but lack the experience banks want to see before lending to your business. Alternative lenders, or online lenders are more likely to fund your business when you’re just starting out.
Some lenders are more likely to approve your business loan than others
Each lender has its own application process. Some lenders want lots of documentation before they can approve your loan application. For example, most banks require a business plan, proof of your credit history, and collateral before they’ll approve a business loan. Other lenders require less paperwork and have faster turnaround times but offer higher interest rates.
Choose a lender based on what type of documentation you have. If you have a business plan and can offer collateral as security, a traditional bank could be a good option. If your credit history isn’t great, an alternative or online lender might be a better fit.
Some lenders have better terms and interest rates
Submitting applications with multiple lenders can hurt your credit score. That’s why it’s important to find the right lender before you start filling out any forms. You can do this by checking out different types of lenders and seeing what they offer. This will help you narrow down your options and find a lender who offers good terms and interest rates.
Before you apply for any loans, take some time to crunch the numbers and see what rates you can afford to repay. This way, you’ll have a better idea of the rates and terms you should accept. Getting a business loan is one thing but you still need to be able to pay it off.
Different types of business lenders
There are far more options than just going to a bank for your financing.
Traditional Banks
Banks are the most common type of lender out there and offer lots of different loan options like secured and unsecured loans, commercial mortgages, and lines of credit. But, they usually need you to have a good credit history and financial stability, and they may ask for collateral to back up the loan. The approval process with a bank can also take a long time compared with other options.
Online Lenders
Online lenders have become popular in recent years. Most lenders offer different loan products including term loans, lines of credit, and invoice financing. They’re usually quicker with the application and approval process than traditional lenders, but they might charge higher interest rates. Online lenders often require less paperwork in their application process.
Alternative Lenders
Alternative lenders are a newer type of lender that offers loans to businesses that might not qualify for traditional bank loans. They might specialise in niche industries or business types and offer loans with more flexible terms and fewer requirements. Alternative lenders often charge higher interest rates than traditional banks.
Need help choosing the right lender?
At ThinkCap, we work with over 70 types of lenders, including online lenders, traditional banks and non-banks to help you find the best business loan for your needs. What’s more, our applications only take a couple of minutes. Apply now to get started.
