For those who own or are considering starting their own business – financing it raises many questions for most: where to start? Where to turn? What should you pay attention to when choosing among several financiers? According to a survey of Lithuanian residents, the two main criteria by which respondents would choose a business loan provider are the interest rate and the reputation of the financial institution. Are these criteria really the most important and what else should be considered? An representative from the crowdfunding platform 'FinoMark' shares advice.

Price – a decisive factor for many

More than half (52%) of respondents in a survey initiated by 'FinoMark' affirm that the interest rate is the most important component in deciding on a financial institution when taking a business loan. It is no surprise that the amount to be repaid later becomes the most significant factor in this process. However, it is crucial to compare not only the interest rates offered by different credit providers but also the total cost of the loan, which includes other fees. 'Seeing a low interest rate, it is important not to be deceived and to inquire what other fees are included in the cost of the loan. Different credit providers structure their pricing differently – some, like us, separate interest and administrative fees. Other companies communicate that they do not apply any fees. However, their higher interest rates suggest that fees are already included in them. Therefore, it is necessary to compare loan providers not by the size of the interest or the amount of fees but by the total amount of the loan that you will have to repay,' advises Emilija Poškonienė, head of 'FinoMark' business loans department.

Provider’s reputation – the second most important criterion

When borrowing money for a business, one wants to find a reliable financier, so it is not surprising that 15% of survey respondents identified its reputation as the decisive criterion in choosing a loan provider. You can verify that the company offering financing is reliable and not trying to deceive customers out of their money on the official website of the Bank of Lithuania. The Bank of Lithuania, having assessed the information available and aiming to protect the interests of loan recipients, announces which crowdfunding platforms are regulated by them.

Checking a company's reliability, it is also recommended to look for customer reviews. If none are found, assess yourself how much the platform is inclined to assist you attentively – contact them by phone, email, or write a question through social networks. The tone of communication, speed of response, and comprehensiveness can also become a significant factor in deciding whether you want to continue interacting with the financial institution.

'Many people think that the financing process takes a very long time and is complicated. In fact, the process can slow down because the person taking the loan has many questions about the required documents. However, at this point, everything can proceed quickly and smoothly if the company's specialists you approach respond attentively and help you easily navigate the financing steps. Ask for advice on security measures, explain what level of detail should be in the documents for assessment – if the specialists react passively to your inquiries, better look for another company where you will be given enough attention,' says the 'FinoMark' representative.

Other criteria worth attention

According to the survey data, 13% of respondents said they did not know on what basis to choose a loan provider. 9% of the surveyed chose the financial institution's fame, 5% – the quick provision of the loan, and 4% – the attention the platform pays. However, among those not mentioned, E. Poškonienė highlights a few more points worth exploring before making a decision.

'Having selected a few financing platforms that satisfy you according to the first two discussed criteria, the final decision on which institution to choose can be assisted by other benefits offered by the provider. For example, in most platforms, only real estate collateral is available, which is rarely owned by small or medium-sized enterprises. So, at this point, it is useful to inquire if any of your selected companies offer collateral of a complex of assets, such as equipment collateral,' says the head of 'FinoMark' business loans department.

According to the speaker, it is also advisable to find out in advance how many and what kind of documents will be needed to fill out the loan application, how long it will take to receive a response about the possibility of financing, or how long it will take for the money to reach your account. Some loan providers may complete a certain step in a day, others may take a week, so to avoid disappointment, it is best to inquire about all details in advance.

About the study

The online survey 'FinoMark' conducted in collaboration with 'Nielsen' took place in October 2021. It surveyed Lithuanian residents aged 16-64. A total of 1600 respondents from Lithuania participated in the survey.