Most don’t shop around – why?
When you need a loan for your small business, do you shop around for the best interest rates? Or do you simply pay a visit to the hometown banker you’ve always worked with?
According to a recent report by Lending Tree, an online lending platform, most entrepreneurs fail to shop around for small business loans, despite the recent proliferation of alternative lenders. After the 2008 financial crisis, small business loans from traditional banks took a nosedive. Yet most entrepreneurs are still sticking with the bank or credit union they already know, or taking a loan from the first lender they find.
They surveyed small business owners who had applied for a loan in the past year, over half, or 58 percent, did not research online and compare options before applying for a loan. Instead, 61 percent went directly to a bank or credit union. According to Lending Tree, entrepreneurs may be “missing out on potential savings by simply not shopping around for the best interest rate and comparing lenders.”
Another study found the same thing
A similar study by alternative lender National Funding and the Northwestern University Kellogg School of Management found that small business owners tend to accept loans from the first lender who will approve them. That’s because entrepreneurs want to finance their businesses quickly and don’t have the time or energy to investigate alternatives.
But time isn’t the only factor – it’s also about trust. The Lending Tree study found that 51 percent of entrepreneurs who had applied for a loan felt a sense of trust with their lender. Alternative lenders will have to invest heavily in marketing and advertising to catch the attention, and earn the trust, of small businesses looking for loans. Even National Funding’s CEO David Gilbert admits that “banks have been around for hundred years. Alternative lending has been around for a decade.”
Nonetheless, with many new financing options emerging, it may be worth doing a little more research next time you need a small business loan – you could find a better option and save money on interest rates.