How to select a small business lender

Jessica SarterSmall Business Lending

One of the most important factors you'll have to consider when applying for a small business loan is the lender you choose. The requirements and terms set by the bank or financial institution you work with will largely determine the length, amount of funding, interest rate and other stipulations you'll have to meet.

Tell-tale signs of a good or bad lender
The question of a lender being "good" or "bad" is largely subjective. Even so, certain features are common characteristics of lenders that you should consider more strongly than others.

Online services and industry expertise are particularly important. The former is valuable in today's technology-driven business world, and it can be helpful to make payments online or have access to information about how much of your loan you owe, and the interest rate (if it's floating and changes regularly). The latter depends on the small business you're trying to finance – some lenders specialize in certain sectors and industries and will be more helpful to you as a result.

Signs of a bad lender are fairly obvious, and you can determine them by comparison-shopping between multiple institutions. These may include interest rates that are higher than many other lenders, unreasonable application requirements, abnormally short loan periods and a general unwillingness to work with you on fair terms.

Using organizational resources
Certain organizations may be able to aid you in your search for a lender and in other queries. The Small Business Adminstration (SBA) Office of Advocacy contains a wealth of research on the current state of small business lending in the U.S., on a nationwide and regional scale. Throughout the country, you can contact this agency directly by visiting its various local offices.

The Better Business Bureau (BBB) may also be able to help. This organization contains comprehensive data on businesses across all industries, including the financial and lending sectors. You can find out if a lending institution has had any consumer complaints filed against it (or, more seriously, any legal actions due to unscrupulous practices) and whether or not it's been accredited by the BBB, which may be a reasonable barometer of its quality.

Know the whole story before you agree to a loan
You need to be sure you're aware of exactly what you're getting into before you agree to take on a loan according to the terms of a given lender. If you feel that you're being treated unfairly, or that you haven't had everything properly explained to you, try another lender – too much is at stake for you to waste time getting small business loans from unfair or unscrupulous lenders.