5 Tips for Business Owners to Borrow Money With Confidence
By Jay DesMarteau
TD Head of Commercial Distribution
When you're ready to borrow money for your business, it's important to feel comfortable with the process. Choosing which bank or financial institution to borrow from is about more than just securing a loan – it's about finding the best overall match for your business. It's worth exploring your options to see which lender can support your business now as well as in the future. Here are our top tips for how to shop and apply for a loan with confidence.
1. Ask questions and take notes when you meet with lenders
Keeping a journal for your meetings with potential business lenders will help you compare options. Take notes during each meeting, and be sure to capture specifics like:
- Interest rates – remember to ask for the interest rate as an APR (yearly interest rate)
- Closing fees
- Any annual fees that may apply
- The lender's ability to provide on-going support and business banking expertise, including relationship management
To help you prepare for your meetings with lenders, see the top 11 questions to ask your bank before applying for a small business loan.
2. Be aware of potential loan fee scams
Typically there are no up-front fees for a business loan, and you should avoid lenders that charge you to complete an application. Most financial institutions have online applications and do not charge a business to apply. Also, if you apply with a bank or Community Development Financial Institution (CDFI), they should connect you with a relationship manager who can help you with the application if you need additional help. Our article on understanding the costs of a small business loan can help you learn more about fees you can expect.
You may also choose to work with a loan broker. A reputable loan broker will typically work without taking any upfront fees from you—they take their commission from the lending institution. When choosing a loan broker, you'll want to do your due diligence in verifying their reputation – a good first step is verifying their physical business address and meeting with them.
3. Safeguard your personal or business credit score from too many inquiries
Multiple inquiries to your credit report can impact your credit score, but you can find out your business and personal credit score by going directly to the credit bureaus or requesting a copy of your credit report—you can request a free copy of your personal credit report annually.† Accessing your credit score or obtaining a copy of your credit report isn't considered a "hard inquiry" so it will not negatively impact your score.
Lenders will pull their own credit report on you once you apply, but you can use a credit report/score you pull to give you an idea of interest rates from a prospective lender before you apply. The lender will share your potential interest rate after you apply and a loan offer is presented.
Remember: You only need to allow a lender to pull your credit score once you've decided you want to apply for a loan with them.
4. Take your time and don't feel pressured to apply for a loan
Securing a loan creates a relationship with the lending institution, so you want to work with a lender who makes you feel comfortable, starting with the application. Avoid working with a lender who is pushing you to do something you are uncomfortable with, such as applying before a certain date for a "loan special" or an offer that "just can't be passed up." Having a few key lines prepared and rehearsed in advance can help in these situations. You can say, "I'd like to review all of my options and then follow up with you."
Also keep in mind that it's not typical to apply for a loan in just one appointment. So, unless you have done a lot of previous research, you can feel confident taking 2-3 appointments (or more) until you have all your questions answered. To help you strengthen your application, learn more about how a bank reviews a small business loan request.
5. Get a second quote from another lender
Many borrowers are often tempted to go with the first institution that will lend to them, but it's important to get a second opinion. Even if you have a long-standing relationship with your bank, it's a good idea to make sure they've provided you with a competitive offer to retain your business. Getting a quote from at least two different banks can help ensure you are getting the most competitive rates and fees available in the market.
Overall, when it comes to borrowing money for your business, it's worth investing your time to find the right business loan and lender. Keep these tips in mind as you explore your options so you can feel confident borrowing money to support your business needs and goals.
Learn more about small business loans
Get insight into funding options to help you choose the approach that best meets your needs.