Ten Things to Consider When Shopping for a New Lender
When trying to find a source of working capital, potential borrowers often get caught up in the headline interest rates, advance rates or line amounts when comparing deals. Here are ten other equally as important factors to consider when shopping for a new lender.
- Origination fees – these can come in different flavors like Origination points, Closing costs or field exam costs. All of these charges are a way for the lender to make the borrower cover their underwriting, marketing and legal costs.
- Minimum Contract Term and Termination fee – A common practice in the industry where you are tied to a term or you can you get out by paying an exorbitant termination fee.
- Unused line fees – Many lenders require you to pay a fee just to have the privilege of maintaining a line even if you don’t borrow any money from them.
- Lender growth – Lenders often are backwards looking, meaning they will lend you money on past sales but won’t take into account your projections or the ‘story’ of where you are taking your company.
- Lender’s experience in your industry – A lender needs to understand the day to day issues that you will face having had experience with other borrowers in your industry.
- Data and intelligence sharing – A lender spends time, money and energy on 3rd party reports and if they are not willing to share these with a potential borrower there may be other transparency issues at play.
- Flexibility – can the lender support occasional special requests like over-concentration on a customer, over-advance on advance or being patient when a customer is getting delayed?
- Other products – A traditional factoring company will work with you only on one product, your invoices. A lender should have the flexibility to offer PO financing, term loans, ABLs and other products as you grow and your needs change.
- Team player – A lender ought to be willing to work with any existing lenders to create a structure that works for the borrower.
- Introductions to other lenders – A lender should be able to recognize when a borrower has ‘graduated’ to a bank line of credit and be willing to work with you to find one. They should also have contacts to help companies looking to raise equity or venture capital.