Many banks across the country offer Small Business Administration (SBA) loans, which are a go-to source for a majority business owners seeking funding. SBA loans are offered by individual banks but are guaranteed by the federal government, so if the loan defaults, the government covers 50 – 90 percent of the loan. This guarantee makes SBA loans low-risk for banks, and ideal for business owners since they boast low interest rates and affordable repayments.
Because you can work with almost any bank to obtain SBA funding, it seems reasonable to start with the bank you’re most familiar with. However, it’s possible – and recommended – to start your financing search by looking beyond your local lender. For example, by working with a business loan consulting firm instead, you can apply to multiple banks with a single application, saving you time and energy and giving you the option of better loan terms.
Here are a few more reasons why you should look beyond your personal bank when applying for a business loan:
1. Personal Banks May Offer Only One Type of Business Funding
If you walk into your persnoal bank and inform the teller you’d like to apply for a business loan, you’ll be matched with a loan officer who wants to sell you the loan. They’ll likely try to get you through the application process quickly, which can be exciting to start taking steps toward funding your business, but it may be in your best interest to pump the breaks.
Before you jump into the loan application process, your first step should be to research all of the funding methods out there and get pre-qualified. Pre-qualification often isn’t as intense as a loan application since it requires only basic financial information, and it can tell you your chances of loan approval, how much funding you could qualify for, as well as offer other financing options that might be a good fit for your situation. A great pre-qualification tool can also help you understand if you need to improve your credit score before applying for a loan so you don’t waste time filling out an application only to get denied. That being said, you should only do a “soft pull” of your credit score during pre-qualification, which won’t impact your credit report — something your bank may not offer upfront.
2. You Can Save Time by Working with a Business Loan Consultant
The application for a small business loan – referred to as a ‘loan application package’ – is extensive and time-consuming. Not only will you need to provide personal and business information, but you must submit tax returns, your business plan and financial projections. What’s more, if you decide to apply with more than one lender, you’ll need to fill out a new application each time.
However, business loan consultants can help you navigate the application process and should be able to use the same application to apply to multiple lenders. What’s more, a good consulting firm will also help you compile your application package and provide an in-depth review of your completed application so you have the best chances of approval.
Outside of completing only one application, when you work with a loan consultant, you can also avoid wasting time by applying to lenders who aren’t interested in financing your specific kind of business. All banks have their own set of guidelines for assessing risk. Sometimes this means excluding certain industries or business structures, but you won’t know this until after you’ve applied. Working with a consultant who has years of industry experience and knows the nuances of each lender can give you back hours of time — time you can use to focus on launching your business.
Loan consulting firms charge a one-time consulting fee, but for many business owners, this fee is worth the time saved and the security that comes from knowing they have a partner to guide them through the loan process.
3. You May Be Able to Secure Better Loan Rates
Will your personal bank give you the best small business loan terms and conditions specific to your business and cash flow needs? It’s possible, but you’ll have no idea without additional offers to compare it to. When you apply to multiple lenders, it will give you ammunition to negotiate better loan terms, as well as offer increased visibility into what kind of offers are available. Having the choice of a loan from a pool of offers puts you in a position of power and control regarding your funding and the future of your business.
4. You May Miss Out on Benefits of Combining Financing Methods
One of the biggest disadvantages of only working with your personal bank for small business financing is missing out on the opportunity to combine financing methods as small banks usually only offer debt-financing. However, it’s possible to increase the amount of money you’re qualified to borrow by combining a business loan with 401(k) business financing.
Also known as Rollovers for Business Start-ups (ROBS), 401(k) business funding allows you to roll over eligible retirement funds to use as cash for financing a business. It’s possible to complete a ROBS transaction and then use those funds as the down payment on your business loan. Having a larger down payment provides you the ability to borrow more funds, increase your attractiveness as a borrower and secure a better rate.
If you’re considering applying for a business loan, Guidant Financial can help you get approved and secure the best rate for an SBA loan. Our team of loan consultants will walk you through the steps of completing your application, provide a thorough review to make your package is a strong as it can be and put your information in the hands of lenders who are most likely to fund your business.
Learn more about the ins and outs of SBA loans and the benefits of working with a loan consultant by downloading our ebook: Everything You Need to Know About SBA Loans.
As always, the easiest first step toward funding success is learning how much small business funding you qualify for. Get pre-qualified for financing here.
