The Folly of Choosing a Lender Based on Price Alone
Today, there are a myriad of business lenders in the marketplace, many of which who claim to be 'the best' or 'the market leader' within the industry, but are they really?
Many of these lenders lure you in with big statements on their websites, advertising amazing (almost unbelievable) rates, but when the lending offer is made, the rates then suddenly change!
There are so many other factors to consider when deciding on a lender. So how do you work through all this to find the right lender to support your business?
Here are a few key questions to ask:
1. What do others say about them?
Look at website reviews and also ask to be put you in touch with current clients who can give you an unbiased reference.
2. What are their hidden charges?
Many lenders will have a headline rate but a multitude of 'admin fees',
'account maintenance fees', or 'audit fees’. These can all add up and can significantly increase your borrowing costs. Make sure you fully understand everything that you are expected to pay and work that total into your model to find the true borrowing costs.
3. Where are the decision makers located?
Many lenders claim to be Canadian but in reality, their owner is in the U.S., therefore, decisions are likely to be based on U.S. dynamics as opposed to local ones. This is extremely important as the 'lending culture' in the U.S.
differs significantly to that of Canada and if things get tough for you – there may not be someone local to support you.
4. Do they specialize in your industry?
Many lenders claim to be an 'industry agnostic' meaning that they will service
all industries. However, due to most companies having an area of expertise, they may not be able to assist all industries equally. Understanding a lender’s niche is very important. For instance, a lender with a focus on one specific area, may not be able to service the intricacies belonging to your differing segments.
5. How have their treated their clients during the Covid-19 pandemic?
Many lenders went into self-protection mode and didn’t give their clients the helping hand they needed most. Ask to speak to some clients who were with them during the crisis and ask what the support mechanisms were like.
6. Most lending contracts are heavily weighted in favour of the lender, but are they reasonable?
Have a good look at their contract and don't be afraid to ask the hard questions. Are the embedded clauses 'watered down' to give you more comfort? Ask your lawyer or accountant to have a look and to give you their honest opinion on how reasonable the contract really is.
7. Trust your gut! Ask yourself - how did they respond to my hard questions?
You are about to go into a new professional relationship and like every new relationship, there will be potential challenges along with a settling down period. It’s important that the lender is going to work with you during this time. Did they give me straight answers or was it just a lot of 'fluff' to get me to sign on the dotted line?Do you feel that the lender is being honest and do you feel that everything has been disclosed? Any surprises once you are in the door are rarely good!
Having worked through this, you may find that the lender you choose is not the cheapest at all but, by paying the right price - you are potentially safeguarding the future of your business.
Express Business Funding is one of the few truly Canadian business lenders who has supported Canadian business for almost 20 years. With transparent fee structures, industry experts in their team, and unmatched customer relations - we are the smart choice, will you make it today?
Express Business Funding