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Small business loans: Five considerations before you 'click to apply'

Sarah Kinkeade

In an instant-gratification society, it can be tough to wait for an answer on a loan. And in the world of business lending, the waiting game can go on for days.

With 69% of small businesses utilizing financing of some sort in 2016,1 the noise around real-time small business lending is getting louder each day. With options to apply for, receive a decision and even fund your small business loan in minutes, it is no wonder business owners are flocking to (and being solicited for) this type of instant-loan.

Before you ‘click here to apply now’ for your next small business loan, take a minute to consider the following:

Who is the bank behind the loan, remembering that it might not be a bank at all?

From traditional banks to lending companies or services, small business owners today are presented with a wide range of options to get a loan. So how do you know which option is best for you? 

You can start by asking a few simple questions. For instance, have you heard of the bank or company? Have they been in business long? Are they seasoned in small business lending or is this their first foray into this world? If your answer to any of these questions is “no” or “I don’t know,” you should probably do some research before clicking to apply. Also, if they are not a traditional bank, it is advisable to weigh the pros and cons of having another account or loan. One of the disadvantages of having a loan from a non-bank is the inconvenience of keeping track of all your finances. Most small business owners have a lot of things to keep track of mentally and the convenience of having all your finances in one spot through a traditional bank can be a huge advantage.

Can you have your other finances at the same bank?

When it comes to your business finances, you should be able to easily access your funds from your line of credit. Consider applying with a bank that not only provides real-time decision for your loan but will work with you to make the rest of your business (and even personal) finances as streamlined as possible. While they may not have the simple 'click to apply' method, it is worth a call to your bank to check on their decision turn-times and ease. If your current bank does not have a real-time decision option, it might be time to research into a new bank that does.

What if you have a question? Or, even worse, what if something goes awry?

When considering a banker, it is important to ask who you can contact if you have questions or if something goes wrong. Are the people on the other end of the phone able to get you to a banker who has small business banking expertise, or do they simply service the loan you have with them without considering your entire financial picture?

Working with an experienced banker, or at least having the option to speak to one if you need to, can provide ease of mind for you. Make sure your questions can be answered by someone who has you and your business’ best interests in mind.

Line of credit or term loan? And what's up with the rate?

Ensuring you choose the right type of loan for your business needs is imperative to your success. A term loan should be used for a one-time purchase like equipment or a vehicle. These loans are paid with a fixed payment, rate and term meaning if you make the payment each month it will be paid off in X number of months. A line of credit fluctuates with your business needs and you only pay on what you have borrowed. For example, you have a vendor that is paying you Monday, but payroll is due Friday. This is a great time to use that line of credit for payroll and then pay the balance back in full after the weekend when your vendor funds arrive. You only pay interest on the amount you utilize and just for the weekend, so a small cost of business that yields happy employees.

Terms for these types of loan can vary between institutions and it can be easy to get caught up in analyzing rate ranges and terms. Remember that these types of loans are considered short-term and are usually unsecured (no collateral needed, just a signature), which tend to be higher rates in nature. There may be a slight uptick in your rate but taking into consideration the ease of approval and speed of funds availability (usually within minutes of approval), a slightly higher rate combined with paperless approvals and the short-term nature of the loan may be a small price to pay

Personal credit

Your personal credit is of utmost importance for this type of loan and your rate as well as odds of approval are highly based on it. In working with these instant-decision loans, I have found that my customers who have been declined for a loan have benefited from having a conversation with me about increasing their score. Those same customers were able to successfully apply for a loan after their credit score increased. Although there are many click-to-apply options available, you may not get that next level of banker expertise and commitment to helping your business grow if your loan is declined.

It is understandable to want to avoid the documentation and questions you would traditionally encounter when applying for a small business loan with a bank, and with almost half of consumers using digital-only banking,2 it is no surprise that the click-to-apply approach for small business lending has grown rapidly.

However, before you jump on those click-to-apply options for your next loan, take a minute to discern the ability to reach out to an actual business banking expert if the need arises. It may never happen, but you’ll be thankful you did the research prior to applying.

Sarah Kinkeade

About Sarah Kinkeade

With almost 20 years of financial experience, Sarah has an extensive background in finance that makes her an excellent resource for both personal and business banking needs. Prior to her current role serving local businesses in the Linden Hills community, Sarah has held multiple positions in bank branch management, consumer lending branch management, merchant processing sales as well as mortgage origination and processing. A leader in her community and at Bremer, Sarah currently serves as the President of Women Influencing and Networking (WIN) for Bremer. She also shows her dedication to the long-term growth of the Linden Hills business community by serving as Co-President of the Linden Hills Business Association. She is a frequent partner of Linden Hills businesses, often helping them thrive in new and innovative ways through personal banking and business lending. A regular speaker at conferences and events, Sarah enjoys developing relationships with others and helping them succeed through the value of building one’s personal brand. Recognizing her professional excellence, community service and her involvement in empowering women business leaders, Sarah was awarded the Athena Award in 2015. Sarah has an MBA from Concordia University in Saint Paul and graduated from Saint Cloud State University with a Bachelor’s degree in Communication with a minor in writing. In her free time, she enjoys hosting events at her home, trying new food and wine, and volunteering at community-focused organizations.)

More on Sarah

  • 1 “Small business loans: Learning how you can access capital for your business with the best small business lenders.” U.S News & World Report, 1 April. 2019.
  • 2 Marous, Jim. “The rise of the digital-only banking customer.” The Financial Brand, 6 June. 2019.