By Michael Ly
Entrepreneurs and small business leaders often ask me for advice on navigating the various sources of traditional and online business lending out there (as a CFO, it's part of what we do).
You may be trying to understand this complex landscape and wondering where to begin or even if you’re ready to start talking to lenders. Here are five things I’ve learned through over a decade of working with startups and small businesses:
1. Plan ahead
Do not wait to apply for cash until you desperately need access to commercial funds. An entrepreneur with no money in the bank is more likely to take a loan at a terrible rate because they did not plan ahead for their cash needs. And having access to enough capital can be a tricky business in the early days: healthy, fast-growing companies will often need to front payroll or marketing dollars while waiting for customers to pay. The lending process at a traditional bank could involve several weeks of applications, reviews, and underwriting, so start before you need the cash. If you can show growth plans and know you’ll benefit from access to funds in the future, now is the time.
2. Get help
Partner with a CFO or local accounting professional to help vet your local banks. They’ve worked with many of the lenders and can help you develop a strong package to bring to the bank and make sure you’re finding the best fit for your company.
3. Go local
Make your first stop your current business bank commercial lender. Or shop around at local banks, who are often hungry to lend and have the best rates on the market. I was able help a recent client get an unsecured $50K Line of Credit at 5% at their local bank by showing healthy financials and a solid growth plan.
4. Keep going
If you aren’t able to get a traditional loan through your local bank, don’t despair. Hit up the SBA. This federal agency has the next cheapest type of funding, and your local bank may even introduce them as an option if the bank cannot offer an unsecured line of credit. As a CFO, I help entrepreneurs apply for SBA loans using smartbizloans.com.
5. Try online
If neither a traditional nor an SBA loan works for you, check out the loan matchmaking site Fundera. I recommend them the most because they work to get you the best offer or rate from the current online lenders as well as banks across the country. Their loan specialists are very helpful and do a great job following up with you during and after the process. A number of my clients have had success closing several types of loans via Fundera at decent rates.
Navigating the lending process can be intimidating, but don’t let that keep you from locating the cash your business needs. Work with a CFO or accounting professional who can assist you with gathering the required documents and creating a solid plan for how to use the funds wisely. When in doubt, get advice and do not fall prey to easy money or predatory business lenders.
Plan ahead, and you'll be on your way to a small business loan at affordable rates for your business.