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6 Questions to Ask When Choosing Your Lender

Fundation, discusses types of lenders to approach based on your business situation. See also, choosing a loan type, acquiring a business, Fundation FAQs and Fundation Business Loan Calculator.

When trying to find the right type of lender for your business, the options available can seem endless. Just Google the words “small business loan” and you’ll see dozens of lenders all claiming to offer the same things: Instant Decisions! Competitive Rates! No Collateral! Approval in One Day! It can be difficult to know where to start.

Comment: In the investment industry, the term “tyranny of choice” is used frequently: When an investor is faced with so many options (thousands of mutual funds, for instance), the investor will simply choose to make no choice at all rather than sift through the dizzying array of options. In fact, behavioral scientists will tell you that an abundance of choices is exhausting, not exciting. Studying the landscape of small business lenders, we wonder if business owners face a similar conundrum when they seek financing.

An informed business owner needs to be able to distill this complicated decision-making process down into smaller parts.

Six Questions to Ask

Start by asking yourself these six questions. Your answers will help you see how well your current situation fits the typical features of the different types of lenders.

  1. What is my personal and business credit profile?
  2. Why am I borrowing?
  3. How much time can I commit to a loan application process?
  4. What type of documentation can I provide?
  5. Do my sales come largely from credit card volume?
  6. Does my business carry high balances of accounts receivable?

After you’ve answered these questions, you’ll be able to decide which type of lender to approach. Here are the main features of the five types of lenders on the market:


  • Only customers with excellent credit should apply
  • Generally will provide capital for any purpose if you qualify
  • Typically a lengthy process (roughly 3-8 weeks)
  • Substantial documentation may be required
  • Lowest cost of borrowing if you qualify

Merchant Cash Advance

  • This is not a loan; These companies take a daily percentage of your credit card volume
  • Tend to have very high costs (equivalent annual percentage rates of 40% or more)
  • Typically require daily payments
  • Best used as cash flow management tool

Factoring / Accounts Receivable Financing

  • This is also not a loan; These companies purchase your accounts receivable at a discount
  • Tend to have very high costs (equivalent annual percentage rates of 30% or more)
  • Also best used as cash flow management tool
  • Documentation requirements tend to be less than what banks required but can still quite extensive

Brokers & Online Referral Platforms

  • These firms are not lenders
  • They collect information from applicants and try to match them to the right lender, or help a borrower find the right lender
  • Can result in a long process and higher fees than if you go directly to the right lender, but can take some burden off of the borrower

Online Direct Lenders

  • Like other online term loan providers, Fundation offers a loan over years rather than months
  • Caters to borrowers with reasonable historical credit or better
  • Length of application process and documentation requirements depend on sophistication of lender’s technology. Fundation’s unique, streamlined application provides funding within days!
  • Borrowing rates depend on risk profile of customer (known as risk-based pricing)
  • Payments can be weekly, twice a month or monthly

For additional information, see choosing a loan type, acquiring a business, Fundation FAQs, and Fundation Business Loan Calculator.

Learn more about CT Corporation’s relationship with Fundation and visit Fundation today.


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