The marketplace for a business capital loan is more diverse today than ever before. This can be an advantage for small businesses looking to find the best option for their needs.
However, as you make the decision for which working capital loan is best for you, it’s important to know what things might be important to keep an eye out for. Here are 4 questions that will be important for you to ask any lender before you apply for a business capital loan.
1. What is the full cost of the working capital loan?
There are a lot of great lenders out there, but there are also people looking to take advantage. Don’t sign off on anything that does not clearly spell out exactly how much your business capital loan will cost. You don’t want to get caught paying for hidden fees and other unknowns. Some lenders may create an agreement that is deliberately more confusing than it should be. Demand clarity, or find a new lender, because the good guys will be willing to walk through all of the details with you.
2. What are the repayment terms of the business capital loan?
Again, some lenders may make it difficult to understand the true repayment terms for your working capital loan. If this is something you’re experiencing, it’s a big red flag. You should have a clear and complete understanding of how you’ll be expected to repay the loan (when, how much, etc.). Also, is there an option for paying off the loan early? Making sure that you are clear on the terms will help you stay on track with your business and making sure that you’re setup for success.
3. Are you working with a direct lender or a third-party broker?
In order to understand what you’re paying for, it’s also important to understand who you’re working with for your business loan.
The industry is filled with third-party loan brokers who shop your application around to various direct lenders. There is nothing fundamentally wrong with this, as long as you’re aware of what that means.
For one, bringing in a middleman means that there will likely be additional fees. They have to be paid by someone! This could mean a higher rate, and could also mean that they possibly have a bias for certain lenders. This could work in your favor if you feel the broker is someone truly looking out for your best interest. However, it is important to make sure that you feel as though they are.
In addition, shopping your loan around to various lenders could mean repeated credit score inquiries since each prospective business lender will want to run their own report. Credit agencies typically provide a window for you to have multiple inquiries without damaging your credit. Make sure to understand what that period of time looks like, and plan ahead so that you can utilize that time efficiently.
4. What happens if I need more money – or if I have too much?
Sometimes, it’s hard to know exactly how much money you’ll need for your business capital loan. You could overestimate, or you could come across unexpected expenses down the road. Or, maybe you get approved for less than you actually wanted. It’s important to understand from your lender what your long term options are.
For instance, some agreements covering working capital loans may penalize you if you apply for a second loan. The funds you get will automatically be used to pay down your first loan – except you’ll continue to pay the fees as if the first loan was still active! This unethical practice is called “Double Fees” and it’s surprisingly widespread.
Or, if you’ve overestimated, is there an option to pay back your working capital loan early with zero pre-payment penalties?
It’s important when considering your business loan that you understand all the factors for your future. Don’t be afraid to ask for more details to make sure you truly understand what you’re signing up for.
The Mulligan Funding Advantage
At Mulligan Funding, we’re proud to lead the way in the lending marketplace by offering loans for working capital that:
- Transparently identify ALL costs and expectations of all parties.
- Clearly note the terms and obligations of your business capital loan so that there are no unwelcome surprises down the road.
- Are 100% funded by our company. We are NOT a broker, and we don’t shop applications across the country. We privately fund all of our loans.
What’s more, after paying off at least half of your first loan, our clients are welcome to apply for additional funds. If approved, you’ll have access to 100% of the funds. Your new funds won’t be used to pay down their first loan. At the same time, our clients can repay their loan early if they wish to reduce their interest costs, and there are no prepayment penalties or obstacles of any kind.
Call Mulligan Funding at 855-326-3564 to talk with a loan advisor about your business financing options today!
*The information shared is intended to be used for informational purposes only and you should independently research and verify.
Note: Prior to January 22, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.