Why It’s a Must to Build a Relationship With Your Small Business Lender

Georgia McIntyre

Georgia McIntyre

Finance Writer at Fundera
Georgia McIntyre is the resident Finance Writer at Fundera. She specializes in all things small business finance, from lending to accounting. Questions for Georgia? Comment below!
Georgia McIntyre

When compared to equity financing—where you’re partnered with investors for the long haul—small business lending is really a “one and done” kind of deal.

You take out a small business loan, repay your lender with interest over a set period of time, and you’re good to go—on to bigger and brighter things after successfully growing your business with a business loan.

This lack of obligation to an investor or partner is one of the many reasons why small businesses should consider debt financing over equity financing. But that doesn’t mean that if you do go the debt-financing route, you shouldn’t care about your relationship with your small business lender.

In fact, we can think of a few compelling reasons why you should invest in your relationship with your lender for the long run. Here’s why relationship building should be an absolute must for small business owners.

1. Give your lender a better understanding of your business.

If you were to apply for a business loan 10 years ago, the key metrics that mattered for your approval were mostly the following: your credit score, time in business, and annual revenue.

This information is still on the list of business loan requirements that any lender will review before lending to you, but it’s not so cut-and-dry anymore.

With alternative lending shaking up the small business lending space these days, lenders look at more qualitative, non-conventional business information to decide whether to lend to you, and how much to invest in your business.

For most business owners, this should come as a relief—no two small businesses are alike, and sometimes numbers just don’t tell the whole story.

Building a relationship with the lender you’re currently working with can help them get to know the intricacies of how you operate your business. They want to know who your customers are, who your vendors are, and what’s going on in your industry.

If they can measure different kinds of health and stability indicators for your business, they might be more likely to renew your financing at a lower rate down the line, or graduate you to a better product.

Letting the lender understand your business can only help you out. But if you aren’t open to building a relationship with your lender, they might not get that inside look into how your business really works.

2. Access relationship-based rates, renewals, and upgrades.

Once you’ve been with your business loan for a fair amount of time—usually a minimum of 6 months—you might be up for loan renewal with your lender.

What is a loan renewal, exactly?

Loan renewals are a way to help finance small business owners who don’t have stellar credit or enough time in business to secure a fully funded loan when they need it.

Say you really need $60,000 to move the needle for your business but no lender is willing to extend you that much credit with your current business credit score or business financials. Instead, a lender could agree to lend you half the money you really need—$30,000—and if certain borrowing criteria are met, they’ll renew your loan for the second amount of funding that you needed.

A loan renewal is a great way to get the financing you need, build your credit score, and prove to your lender that you’re ready and capable to take on more debt from them.

Building a relationship with your lender facilitates the process of renewing your loan for better terms and rates for your business down the line. They can see firsthand that you’re paying your loan back in full and on time, and that you’re building the credit score that they need to see to lend to you on better terms. So to move the loan process along more quickly, stay in good standing with your lender by developing a good relationship.

3. Build your trust level.

When it comes to small business lending, the risk goes both ways.

Extending credit to a young, small business is inherently risky, and taking on debt to grow a business is also never a sure bet. But the process of being in close and frequent contact with your lender and willingly sharing information about your business can help build trust with your lender.

With a higher degree of trust, you can be more confident that the lender is truly working to get you the best financing for your business. And on the other side of the deal, the lender can feel a little better about your ability to repay your debt with some trust in place.

And when you establish some sort of trust with your lender, you might be more willing to come to them when you need help with your financing. If you’re worried that you won’t be able to make your loan repayments in the coming months, you can bring the issue up with your lender early on so that they can see if there’s something they can do to make the agreement work.

When it comes down to it, a little trust on both sides of the lending relationship will help make your loan process a successful one.

4. Get advice about your small business financing needs.

If you have a solid relationship and rapport going with your business lender, you might be able to get better advice on your business’s financial needs.

Lending to small businesses is, obviously, what lenders do. They know when a business needs financing, how much they really should take out in a loan, or what kind of loan would work best for a certain business purpose.

If you have a strong relationship in place with a loan officer or commercial banker, you could access some pretty valuable knowledge on how to manage your business loan and use it for your benefit.

The ability to ask for advice on your balance sheet or insight into what the lender needs to see to be more confident in your business could be a huge asset for your business in the long run. But you’ll only be comfortable working with your lender like this if you have a solid history in place.

The Bottom Line on Lender Relationships

If you really think about it, there aren’t too many reasons to not build a strong relationship with your small business lender.

Both in good times and in bad, having a solid relationship in place will encourage you both to share information that will be beneficial for both parties.

The more your lender knows your business and what you need to be successful, the easier it will be for them to help you get there.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Georgia McIntyre

Georgia McIntyre

Finance Writer at Fundera
Georgia McIntyre is the resident Finance Writer at Fundera. She specializes in all things small business finance, from lending to accounting. Questions for Georgia? Comment below!
Georgia McIntyre

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