10 Factors To Consider When Evaluating A Business Loan Offer

Business Loan Offer

Published on November 16th, 2021

Funds are the lifeblood of any business venture. How you fund your business can make or break your future avenues, reputation, external relations, leads and sales.

When looking for funding avenues, entrepreneurs usually tend to immediately accept business loan offers that they receive.

The common perception is that the demand for business loans exceeds their supply and hence entrepreneurs usually tend to take what they get. This conception however is incorrect.

The process of choosing a lender must be undertaken as diligently as the process of choosing a debtor. Here are ten essential factors to consider when evaluating a business loan offer:

1. Loan Amount

You may receive an offer to borrow a certain amount, however this does not imply that you must accept it.

One must determine if the offered amount matches the business prospects and whether it is too much, too little.

Or just enough. A lesser than required amount will have you scrounging for additional funding sources, while an excess amount will contribute to unnecessary interest costs. If the amount does not match your needs, you may consider other lenders.

2. Interest Rates

Interest rates determine the cost of borrowing and are hence an essential factor to consider when accepting a loan offer. It’s essential to do the math as the lower the interest rate, the more money you save.

It is important to undertake an effective cost-benefit analysis before borrowing from a specific lender.

The interest rate may also depend on your credit score. If you have a decent credit score, always compare rates across 3-4 lenders to analyze the range available to you.

3. Loan Fees

Alongside interest rates, costs associated with borrowing a business loan may include loan fees which constitute a plethora of charges, including origination fees, processing fees, non-sufficient funds fees and late fees, among others.

If the total of these charges, as quoted in the loan offer, amounts to a substantial portion of the borrowed amount, you may want to reconsider borrowing the loan from that particular lender.

4. Loan Repayment Terms

The repayment terms must allow you to operate your business with minimum restrictions and constraints.

If the terms do not suit your budget or restrict normal business operations, you must reconsider your lender.

Failing to do this may result in missing payment deadlines and defaulting on reimbursements for certain charges which would impact your credit score in the long run. Hence, it is always advisable to consider the benefits and costs associated before accepting the loan.

5. Payment Process

The payment process goes hand in hand with the repayment terms. It is necessary to thoroughly grasp the very minute details of the payment process.

The frequency of repayment-bimonthly, monthly, weekly, or as per the flexibility of the borrower, should be vigilantly taken note of.

The lender may mandate automatic withdrawals, implying that you have lesser say in what you do with your money.

If that is unacceptable to the conditions of your business, considering another lender who does not have such terms may help your business while solving its monetary needs.

6. Collateral Requirements

Most lenders tend to provide secured loans, which implies that you may have to surrender an asset in favour of the lender that they can liquidate to recover the lent amount if you fail to repay the loan.

This implies that you do away with an expensive asset in the case of default. Expressing growth in revenue potential and goodwill can help you qualify for an unsecured loan, which does not require collateral.

The qualification for an unsecured loan depends on the standing of your business, your clientele, the revenue and the industry.

7. Loan Type

The type of loan offered must also be considered diligently. There are aplenty types of business loans in the market, including business lines of credit, merchant cash advances, business credit cards, small business administration loans, invoicing finance, equipment finance, and traditional term loans.

The type of loan you consider must fit your financing needs, your repayment expectations and must not interfere with the operational flexibility of your business.

8. Funding Time

The dispatch of funds must match your requirements. If the lender takes long durations of time to complete due diligence, clearances and other requirements to disperse the funds, you may check offers provided by other lenders that pledge to transfer funds within 24 hours or in a few days post approval.

9. Lender’s Reputation

Not all lenders that provide loan offers are credible. Some lenders come with a great amount of risk. Instances of not checking credit scores or not having a minimum credit score requirement, not having a physical address or a website, hidden loan fees and less explicit documents, short duration offered between loan offer and acceptance are certain scenarios where you must do adequate research regarding the lender before getting into a financial agreement. Only when you have independently established the credibility of your lender, should you borrow funds from them.

10. Customer Service

The current business world operates on the aphorism of ‘Consumer is King’. Consumers drive most markets given that markets operate on the primacy of demand.

A customer service cell is almost a prerequisite to maintaining good customer relations. At some point, you may have to raise a question or a query with your lender and the availability of customer services plays a crucial role in conducting such communication.

For understanding the quality of the customer services provided by your lender, it may be helpful to read reviews about the lender and use the services in getting any clarifications about the loan offer resolved.


In essence, it is important to weigh all aspects of a loan offer before accepting one. Financing decisions must not be taken speedily and must be thoroughly researched to finalize the best option available.