5 Essential Tips for Choosing the Right Small Business Lender

Starting or expanding a small business often requires additional capital. Finding the right lender to provide this capital is crucial for your success. However, not all lenders are the same. While some will help your small business grow, others can be predatory and take advantage of your situation.

That’s why comparing lenders and their terms is essential before signing agreements. The right lender should provide the funds you need with terms that support your business goals.

Small business lending
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To help you make the best choice, we’ve listed down five valuable tips for choosing the right small business lender. With this information, you can decide and find the best financing for your business.

Have a Clear Understanding of Your Funding Requirements

Before evaluating financing options, understand your funding needs. Determine the exact amount, the purpose (such as expansion, inventory, or working capital), and the timeline for when you need the funds.

It’ll ensure you borrow the right amount and guide you to lenders who specialize in your funding purpose. Knowing your timeline is also crucial, as some lenders provide faster access to funds. This initial assessment helps filter out unsuitable lenders, saving time and effort.

Tip: Create a detailed business plan outlining your financial needs and how the loan will be used. Include projections, cash flow statements, and descriptions of how the funds will support your business growth or stability. A comprehensive business plan makes you more attractive to lenders by showing a clear vision and repayment strategy.

Consider Your Qualifications

Each lender has specific eligibility criteria that differ depending on the loan product. Knowing these requirements will help you identify lenders that align well with your business needs. Here are some general guidelines to consider:

  • Credit Score: Most lenders require a minimum credit score, often considering a FICO score of 670 or higher as good. Some also check your business credit score, especially for large loans. Maintaining a solid credit score improves your chances of securing favorable terms.
  • Debt-to-Income Ratio (DTI): Lenders assess your DTI to see if your company can handle more debt. Aim for a DTI of around 36%, though some lenders may accept higher. A lower DTI indicates a healthier balance between debt and income, making you a more attractive loan candidate.
  • Time in Business: Generally, you need at least two years in business to qualify for a loan from a traditional bank. Some lenders may consider you with just six months of operation. More extended business history increases your chances of securing a loan by demonstrating stability.
  • Annual Revenue: Lenders typically require minimum annual revenue, usually between $100,000 and $250,000. Meeting these thresholds shows a steady income stream, making you a more appealing borrower.

When assessing lenders, ask about their specific requirements for the loan products you’re interested in. Some lenders have stricter criteria than others, so not all will suit your business. Understanding and meeting these qualifications can help you narrow your options and find the right lender for your needs.

Business lending

Consider Different Types of Small Business Lenders

When seeking financing for your small business, it’s essential to understand the various types of lenders available and what they offer. Each type has its features, benefits, and loan products. Here’s a detailed look at the different lenders and what you can expect from each:

Alternative Lenders

Alternative lenders, such as online, direct, and peer-to-peer lenders, offer financing options like short-term loans, microloans, and lines of credit. They have flexible eligibility and often allow prequalification without affecting your credit score. These alternatives to loan sharks provide quick access to funds but usually come with higher interest rates and fees, so review terms carefully.

Banks or Credit Unions

Traditional banks and credit unions offer term loans, lines of credit, and equipment financing with attractive rates and terms. However, they have strict eligibility criteria, requiring a strong credit score, solid business history, and substantial collateral. The application and funding process can also be slow, which may not suit urgent funding needs.

SBA-Approved Lenders

SBA-approved lenders offer 7(a), microloans, 504, and Express loans, featuring long repayment terms and competitive interest rates. While attractive for small businesses, the application process can be lengthy and requires detailed documentation, so be prepared for a thorough review.

Community-Based Lenders and Nonprofits

Organizations like Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) help business owners in underserved communities. They offer term loans, SBA loans, and microloans and are more accessible even with credit score challenges. Though they may provide smaller loans than traditional banks, they are an excellent option for businesses lacking access to capital.

Checking different types of small business lenders and their offerings can help you better assess which best aligns with your business needs and qualifications. This knowledge will help you make an informed decision and find the best financing solution for your business.

Learn from the Experiences of Past and Current Customers

Gaining insights from past and current customers is invaluable when selecting a lender. Check online reviews on Trustpilot and the Better Business Bureau (BBB). Look for patterns in the feedback—are most reviews positive, or is there a lot of negative feedback? Pay attention to detailed reviews with specific examples of customer experiences, as these give a clearer picture of what to expect.

Be cautious of government actions or significant complaints on the BBB profile, as these red flags may indicate serious issues with the lender. Consider positive and negative reviews, focusing on specific details rather than generic statements. Specific feedback can better represent the lender’s strengths and weaknesses.

Additionally, talk to other small business owners about their experiences with different lenders. Personal recommendations can offer valuable insights that are not always evident in online reviews. Use multiple sources of information to get a comprehensive view of the lender’s reputation.

Businesswoman using lending software

Consider the Application Process

When evaluating lenders, it’s essential to understand their application processes and how they might affect your credit score. Many lenders offer online prequalification or preapproval, which only requires a soft credit check and won’t impact your credit score.

If you prequalify, you can review potential loan offers, including monthly payments, interest rates, and terms. However, a hard credit inquiry will be performed if you decide to proceed with an application or if prequalification isn’t available. It can cause a slight dip in your credit score, but it typically rebounds quickly.

Before you apply for a loan, you must be aware of the application process and its effects on your credit score. This knowledge will help you navigate the process more confidently and make informed decisions about pursuing financing.


Ready to find the perfect lender for your business? Start by assessing your funding needs and creating a detailed business plan. Then, explore your options and choose a lender that aligns with your vision. Your future success begins with the right financial partner.