FIRST QUARTER 2019 21 continued from page 20 practices and limited safeguards for borrowers. “It’s even more important than ever for borrowers to engage in due diligence concerning lenders and their policies,” said Beeson. Among other things, due diligence means talking with references. “Find out if the lender has been in business a long time and with whom they have done business previously,” said Holt. “Interview their previous and current clients—and makes sure the people provided as references really are their clients.” Avoid vulture lenders, who often charge excessive interest rates and demand quick repayments. Getting unbiased feedback can be a challenge—all the more so if you rely only on reports from your competitors. “Businesses outside your industry are more likely to share honest insights,” said Holt. “Make yourself an active member of a larger business community.” Network with members of your chamber of commerce or other business improvement group. COMPARE OFFERS Smart borrowers shop around. “Apply to at least five or six lenders, being consistent in what you tell each one,” said Holt. “Do your homework by studying their websites and asking about their expectations. See if they are listed with the Better Business Bureau and find out which ones have had complaints filed with your state’s attorney general.” The only way to accurately compare loan offers is to compare APRs, making sure that the figures reflect both interest rates and service fees. One thing is virtually certain: Your cost of money will be higher at alternative lenders than at commercial banks. “These platforms are not giving away money,” said Vrancik. “They want to be compensated appropriately for their risk.” If cash is costly from alternative lenders, sometimes paying a higher rate is the only practical solution to a business problem. “If you need the money and have to bite the bullet, then you do it,” said Vrancik. “But first, do your homework.” Philip M. Perry is a freelance writer based in New York. Vetting The Nonbank Lender Landing a good deal with an alternative lender requires careful planning and vetting. The loan application should convince the lending platform that the borrower can capitalize on the borrowed funds and can meet the repayment schedule. “Start by identifying what you need the money for, how much you need and for how long,” said Barbara Vrancik, a small business financial consultant based in New York City (BarbaraVrancik.com). Then go one step further by showing the prospective lender how the borrowed money will result in higher profitability, generating the funds required to repay your loan. “Have a detailed plan showing how your loan will make at least two times as much money as its total value,” suggests Marilyn J. Holt, a Seattle-based consultant and author. “And have a strong, verifiable plan rooted in reality for how and when you will make your repayments.” When researching prospective lenders, Vrancik suggests asking these questions: • What are the interest rates and fees? • How frequent are repayments, and in what amounts? • Does the lender require collateral? • Will the loan restrict your ability to incur additional debt, or to operate your business in any way? • Can you modify the terms of the loan if you should need a waiver or extension down the road? Compare the answers from the prospective lenders and go for the best deal. COVER FOCUS