Choosing the right business lender requires due diligence. However, knowing what to look for and which questions to ask can be easier said than done — especially since your focus is on running your business.
To help you head in a direction that is both safe and rewarding, here are 5 red flags to watch for when partnering with a business lender:
They have no business address.
Many reputable lending firms — including National Business Capital — serve clients across the country without ever meeting them face-to-face. This certainly isn’t unusual. Even people who buy consumer goods like clothing and groceries often opt for the convenience and cost-savings of e-commerce vs. heading to a brick-and-mortar retail store that might be within walking distance.
However, it’s imperative that any prospective business lender has a legitimate business address that you could, if you wished, visit during normal business hours. And bear in mind that legitimate doesn’t mean a PO box or c/o some other company that you’ve never heard of. The address should be for a physical location — and with no disrespect intended to home-based business owners, the address for a lender must be for an office and not a house.
They won’t give you clear and transparent details.
You should get full information on how any proposed funding arrangement will work, and your total cost of borrowing — including dates, amounts and options (as applicable). If any of this information isn’t provided to you, then then this is less of a red flag, and more of a red siren that screams: “STOP – GO NO FURTHER!” A legitimate and safe business lender will be more than willing to ensure that you understand all of the details. In fact, they will insist on it, because your success is their success.
They keep pushing you towards one type of business loan.
There are a variety of lending solutions available, such as working capital loans, business lines of credit, merchant cash advances, accounts receivable financing, inventory financing, equipment financing, and the list goes on. Granted, some of these may not be viable for your needs (for example, if you aren’t in the retail space and you don’t conduct most of your transactions via credit card/debit card, then a merchant cash advance wouldn’t be on your list). However, if a prospective lender aggressively pushes you towards one type of business loan, then it’s typically because that one loan is all that they offer — not necessarily because it’s the right one for you.
They want you to borrow more than you need.
At first glance, this warning may seem out of place on a list of red flags to watch out for before partnering with a business lender. But a deeper look reveals why this can be a big problem: if you borrow more than you need, you’ll either have “dead money” sitting in your account being eroded by inflation and driving up your total cost of borrowing, or you’ll feel pressured to spend money to satisfy your lender — not because it’s in your best interest to do so.
A responsible and professional lending partner will work with you to understanding your expense and investment profile, and then help you identify the optimal borrowing amount — which is one that gives you maximum leverage and flexibility, while minimizes your costs.
They don’t have testimonials and get defensive when you ask why.
You need to look beyond marketing material, and access feedback, reviews and testimonials from real business owners like you. If your prospective owner balks at your request for “social proof,” or tries to explain that “each business is different and so reviews don’t apply in the business lending industry,” then end the conversation immediately, cross them off your list, and don’t look back. You’ll be glad that you did!
At National Business Capital, we’re proud to confirm that we don’t raise any of these red flags described above. You can visit us anytime you wish at our offices (coffee’s on us!) or check out our “Meet The Team” page to see the real people who care about your success. We’d love to chat about business loan options, share our testimonials and invite you to confirm our A+ rating with the BBB!
To learn more — and to keep your red flags furled vs. flapping — contact our team today. Your consultation with us is free, and there’s never any obligation, pressure or risk.