Lenders are defined as companies or financial institutions that provide loans to businesses and individuals, expecting that the total amount of loan will be repaid later. The lender earns interest on the mortgages, which is charged at a specific percentage of the total loan granted to the borrower. Borrowers can repay loans in installments, such as monthly installments or lump-sum payments.
Lenders provide loans that can be used for multiple purposes such as student loans, business capital, or financing working capital. Businesses can also borrow money to give a backup credit that assists companies with unstable cash flows.
The Lending Process
Both the lender and the borrower can initiate the lending process. Mostly, the borrower approaches the financial institution for a mortgage and is required to fill a mortgage application form. The information needed for the application process includes the requested loan amount, payment purpose, current cash flow or income, borrower’s address, guarantor’s name, address, etc.
Financial institutions may additionally approach an individual or organization with a proposal to lend credit at favorable terms.
The potential creditors, in such cases, are often high-net-worth individuals and fast-growing companies that require regular loans to invest or finance working industries.
Types of Lenders
■ Traditional lender
Traditional lending institutions mainly include credit unions, banks, and other financial institutions that grant loans to small and medium-sized companies. Typically, various loan terms and conditions are provided by the lending companies. That means it works as a benchmark for comparing other alternatives.
More so, individuals and legal persons applying for loans from traditional lending institutions must meet the strict borrowing requirements issued by financial institutions.
■ Alternative lender
Alternative lending institutions take advantage of the lenient regulation by federal agencies. Unlike traditional lenders, the level of administration would be different for alternative lenders. It includes online lenders, affiliated lenders, and crowdfunding. They provide short-term loans and do not demand borrowers to provide collateral.
Alternative lenders may request borrowers to provide more paperwork and documentation for larger loans. The intended documents may cover corporate and personal account statements, credit reports, business plans, employment certificates, etc. The interest rates for both secured and unsecured are variable. However, due to the high risk of loss, interest rates on unsecured loans are usually higher than conventional loans.
How to Find a Lender?
It is best to spend time researching various lenders in the market if you plan to get a loan. Each lender offers different loan terms and interest rates.
Start your research based on the type of loan you need, as most lenders focus on providing specific types of loans. Also, request referrals from family, friends, counselors, mentors who have borrowed money in the past. Finally, decide on two different lenders and compare them to determine the most favorable option.
The best places to apply for extension are banks and credit unions; these financial institutions offer different loans such as commercial loans, home equity loans, personal loans, or car loans. Communicate with the credit department to discuss loan applications and other specific details.
Factors to Consider when Finding a Lender
1) Loan amount
The expected loan amount will determine the type of lender you need to reach. There may be viable options for small loans as family, friends, and other lenders grant money with no borrowing requirements. In the case of large loans, visit a bank to learn about their terms and interest rates.
2) Startup business
Most commercial banks avoid providing loans to startups due to the lack of stable cash flow and transaction history with banks. The best places to get startup loans are the less traditional lenders, such as family and friends, crowdfunding, and online lenders.
3) Mortgage assets
Most lenders require borrowers to provide collateral for loans. If you have commercial assets with verifiable proof of ownership, you can easily obtain loans from financial institutions on more favorable terms. Using assets as collateral provides some assurance to the lender that the bank can sell or auction the assets to recover the entire loan amount in the event of a default.