Small Business Term Loan Considerations

business owner

What should you consider when comparing small business loans from multiple lenders? In this article, we cover key considerations – from the lender’s service and expertise to the loan amount and repayment term. Keep reading to learn more.

About 66% of small businesses faced financial challenges in the last year, according to the Federal Reserve’s Small Business Credit Survey. The most common financial challenge for small business owners was covering operating expenses, including wages. When applying for financing to manage these challenges, a small business loan or line of credit is the most sought after lending solution, the Fed reports.

In this article, we discuss key considerations for making small business loan comparisons between lenders—as well as what you can expect when seeking a small business loan through Cadence Bank.

6 things to consider when looking for a small business loan

1. Your funding needs

The first thing to consider when comparing small business loans is why you need funding. Do you need to finance a business equipment or vehicle purchase? Are you looking for a more convenient way to pay for routine expenses? Do you need to fund operating costs?

>>Related Reading: 12 Times It Makes Sense to Take Out a Small Business Loan or Tap a Line of Credit

Your funding needs determine the best lending option for your business. A business term loan is best for equipment purchases and expansion, but one of our business credit cards may be better if you want to improve cash management of office and travel expenses, for example. We also offer small business lines of credit to help you fund short-term working capital, seasonal inventory purchases and unexpected expenses.

2. The lender’s expertise and service

Having a knowledgeable lender may be just as important as receiving sufficient funding for your business. Throughout the course of your term loan, your banker should be an advocate and advisor for you. Because of this, a lender’s service and expertise should be a key factor when making a small business loan comparison.

At Cadence Bank, we take pride in the expertise of our relationship-focused bankers. We’re dedicated to understanding your business and industry so we can provide valuable financial, competitive and strategic insights.

While some lenders think the transaction ends when you sign for your loan or line of credit, we don’t see it that way; we believe this is just the beginning of our banking relationship. We aim to provide superior service and expertise to our small business clients throughout our partnership.

3. The loan amount

When you apply for funding, you probably have an idea of how much money you need and will take this into account when comparing small business loans between lenders. Receiving full funding depends on multiple factors. To determine a loan amount, our small business lending team looks at things such as your current amount of debt, credit score and business performance. This may require you to provide documentation such as:

  • Bank statements and balance sheet
  • Profit and loss statements
  • Business and personal credit scores
  • Business and personal tax returns

Some common reasons funding isn’t approved, according to the Fed’s Small Business Credit Survey, include having too much debt, a low credit score, not enough collateral or insufficient credit history.

4. The interest rate

The interest rate is another important consideration when looking for a small business loan. While the state of the national and local economies may affect your interest rate, so will your personal and business finances. For example, we take into account your credit score and cash flow when determining the interest rate of your small business loan. Both your credit score and cash flow help us understand your ability to repay your loan.

>>Related Reading: The 3 Biggest Things Banks Look at When Reviewing Small Business Loan Applications

Small business owners who applied for financing through an online lender or non-bank finance company were most displeased by high interest rates, per the Fed’s Small Business Credit Survey. There were fewer instances of interest rate dissatisfaction among those who applied through a small or large bank, making banks a viable source for a business's lending needs.

5. The collateral requirements, if any

Some small business loans may need to be secured by collateral. According to the Fed's Small Business Credit Survey, this could include inventory, accounts receivable, or assets such as equipment or computers. In some cases, as the small business owner, you may be required to personally guarantee your loan by pledging your house as collateral.

While it’s good to be aware of potential collateral requirements, note that not all small business loans require collateral. Our team can walk you through what may affect whether or not you need to secure your loan with collateral. If your loan does require collateral but you’re worried you don’t have a sufficient amount, we can discuss alternative lending solutions.

6. The repayment term

Just as your loan’s interest rate influences the total amount of interest you’ll pay and how much your monthly loan payments will be, so does its repayment term. Generally, the stronger your financial track record is, the better loan terms you’ll be able to get.

However, as you make small business loan comparisons, it may be helpful to use a small business loan calculator to see how different loan terms and interest rates may affect your monthly loan payment. This highlights the maximum monthly payment and largest loan amount your business can afford.

This knowledge is also great to share and discuss with your small business banker. Understanding your financing needs and pain points helps us deliver the best services and solutions for your small business.

Apply for a small business loan today

We hope this article answered some of your questions and alleviated some of your concerns about the small business loan process. At Cadence Bank, we understand the importance of choosing a small business loan that best supports your short- and long-term business goals.

If you’d like to learn more about our small business loans and lines of credit or are ready to apply for a small business loan, contact one of our small business bankers today.

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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