The Ultimate Guide to Picking the Perfect Lender for Your Business

Jonathan Mills Patrick -

As part of my course, I provide people with a list of 50+ lenders to send business loan requests.

That doesn’t mean that I send each business loan to all of those fifty lenders.

I generally aim to get a loan package in front of 2-3 at the most.

There are a few reasons for that limited approach.

I like to build deep relationships with a few lenders, rather than a shallow relationship with a bunch of lenders. That way, I can lean on that relationship when I need to. There is no way to feed 50+ lenders enough volume to build a deep relationship.

Lender appetites vary. What one lender may find an interesting deal, others may not. So, sending a deal they wouldn’t be interested in wastes their time and yours. I call this shotgunning deals. It’s a bad practice that other courses teach. Don’t do it.

Each lender is going to run credit on the borrower. That can hurt their score. Unless you are leveraging a marketplace, where one application reaches multiple lenders.

How to pick the perfect business lender

Since I teach people to focus on a few lenders at a time, it becomes important to pick the right lenders. That way you aren’t spinning your wheels with the wrong ones.

There are some criteria I use for selecting the perfect lenders:

  • They have to demonstrate preliminary interest - I accomplish this by sharing the core features of the request. The amount, the potential collateral, the borrower’s location, and any sticking points I uncovered in my pre-screening. I don’t work with lenders that want the full package without talking through the basics first.
  • They must have experience in the borrower’s industry - if, for example, a lender has never worked with an e-commerce brand, they won’t understand the unique needs of such a borrower. That could cause them to apply irrational or unreasonable restrictions on the borrower.
  • They are a depository financial institution - some “banks” are just lenders and don’t hold deposits. In the past, I have used that type of lender, but when possible I prefer to use a lender that is a depository institution (bank or credit union). I do this for various reasons. One reason is that I can negotiate a lower rate when the borrower is willing to move their deposits to the lender.
  • They use technology in their process - in our tech-enabled world, there are plenty of lenders who still use antiquated processes such as paper applications. I practically refuse them. If the lender does not use modern technology to improve the process then I find someone else.
  • They are willing to commit to a turnaround time - many lenders won’t do this. I focus on the ones that will. I’m not looking for a perfect deadline. But, they have to be willing to commit to a rough turnaround time. This demonstrates they have their process down and are willing to be expeditious.
  • They are willing to provide a term sheet - a term sheet is a document outlining the structure of the proposed loan and is provided before the loan is approved. Think of it as conditional approval.
  • If applying for an SBA loan, they must be a Preferred Lender - PLPs, Preferred Lending Partners, are approved to make loan decisions on the SBA’s behalf. This speeds up the process.

One of the takeaways I want you to note is that this isn’t the entire list of what I look for.

Business lending is a complex financial process. I’ve worked with many finance professionals with experience in other arenas, such as mortgage lending, that quickly learn that business lending is different.

It’s taken me decades to develop this experience. Hopefully, the list above helps speed up your learning curve.

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