It's a fact of business life: All enterprises need money from time to time and it’s up to owners to choose the best lenders for their needs. The big banks benefit from their name recognition and a reputation for stability, but their lending processes are frequently slow and tedious. Even worse, often they won’t even lend to high-risk industries like restaurants or retailers. Private lenders like iCapital are an obvious alternative but some question if they are risky. For Canadian small business owners, choosing between lending institutions can be a stressful exercise. Read on for more on how to make this important decision.
What’s the differences between a bank and a private lender?
Those getting a loan from a big bank can depend on the broad name recognition of their lender and may be able to ask for larger loan amounts. The cost of borrowing tends to be lower as well (mostly because banks steer clear of risky small business investments). On the other hand, the application process can be extremely long and tedious, and small businesses may have more trouble meeting requirements. For quick and lean small businesses—particularly those deemed risky, big banks tend not be a good fit.
Private lenders like iCapital offer an attractive alternative, especially for businesses in retail, hospitality and professional services. Why? The application process is much simpler, often returning approvals within hours and funds shortly thereafter. The setup, too, is easy—replacing annoying bank branch visits with automated account withdrawals. The downside is these lenders generally take on the accounts banks see as risky, which means borrowing money from a private lender may cost you a little more.
In short, private lenders—like the big banks—offer financing opportunities to small businesses. Whichever lender you choose, the only risk is if you cannot repay.
Avoid this common mistake to mitigate your risk
When an applicant asks for a loan, they have to be responsible in their request to make sure they can meet the repayment terms. Here are two of the most common mistakes small businesses make and how we, at iCapital, help people avoid them.
- Requesting a loan for more money than they can repay
Understanding how much money you need and how much money you can afford to borrow can be tricky. If you ask for—and receive—too much, repayment can become impossible, putting your business at risk. At iCapital, we pride ourselves on the care we take with our clients right from the application stage. To this end, we employ underwriters who follow strict our guidelines when they analyze and approve companies. Our underwriting standards ensure your company will be able to meet your obligations on the loan.
- Stacking loans
Some companies take on multiple loans at once, even taking them from two different lenders at once to avoid detection. We actively discourage this practice, and will work with you to determine exactly what you can afford to borrow. Our goal is to give customers such a positive experience that they’ll come back to us again in future. Think of us as long-term relationship kind of people, versus serial daters. (Hint: keep an eye out for the serial daters out there who aren’t looking out for your best interest!)
Eventually, your business will need to find a lender. While there are numerous ways to measure the pros and cons between big banks and private lenders, perceived riskiness should not be one of them.