Business owners looking for a cash investment may look to online lending over more traditional banking options. Many may assume that online lending is a fast and easy way to access the necessary funds. But like any other funding option, it is essential to know the facts about online lending before jumping into it.
below, members of Forbes Finance Council Provide 15 tips for business owners looking to explore online lending options. They explain what to look for and what to look for in a lender before signing any virtual paperwork.
1. Read the Terms and Conditions
Entrepreneurs should thoroughly research the lender’s offering to ensure that the product and associated terms and conditions are compatible with their financial situation. They should also review the company’s customer testimonials, see if there are any hidden costs or unusually high interest rates, and determine whether the lender will provide recourse/non-course funding or non-course funding before entering into an agreement. Provides collateralized/non-collateralized funding. , Pushkar Mukewar, Drip Capital
2. Use Online Resources to Find a Lender
There is a difference between “online lenders” and “finding lenders online”. Using online resources to research and match you with the right commercial lender for your business is extremely powerful and is a tool that is under-utilized by business owners. One thing you need to consider when using online resources to find a lending solution is to ensure that the organization is reputed, transparent and experienced. , Matthew Beonerud, capital brain
3. Understand the Timeline Difference
Most business owners know how to use a cash infusion, but when applying through traditional lenders, they may be planning a month or two in advance. The application process for online lenders is very simple and funds can be obtained faster, allowing for immediate access. Lenders can reap the benefits of funding faster because they execute faster than they anticipated on their vision. , Bernard Martinez, paypal
4. Look for an April
If it sounds too good to be true, it probably is. Small-business owners considering online loans should look for APRs. Entrepreneurs should understand all the costs, rates and terms associated with the loan before signing any document. Often, unscrupulous lenders hide exorbitant fees behind promises of quick cash and post numbers that look like interest rates but are not. Reputable lenders post APRs. , Caroline Martinez, cameo
5. Review the Fine Print Carefully
Online lending can be super fast and convenient. And who doesn’t love it? But what interest rates would you agree to pay if you take the online loan route? If you want to avoid some shockingly high rates and avoid harsh penalties for late payments, you better be prepared to do a very serious review of the fine print. , Khalid Parekh, fair bank
6. Know Interest Rates
Online lenders lend money if they can benefit from it. They will also anticipate interest payments, which can pile up quickly. In extreme situations, the interest rate can reach above 100% APR. Before applying for a loan online, do your research. Never borrow money without knowing the interest rates and APR charges. , Neil Anders, Reliable Rate, Inc.
7. Ask About Industry Experience
Organizations seeking online lending do so to speed up the process. First, ask the lender if they have worked with organizations in your area. For some lenders, there are industries they prefer to avoid. Asking this question up front saves you from wasting valuable time taking out a loan from a company that may not be willing to work with you, no matter how fast you can repay it. , Jeffrey Bartel, Hampton Group, LLC
8. Get Your Books in the Cloud
Make sure your books are in cloud software and up to date. Many online lenders offer quick cash-flow-based loans by directly accessing cloud accounting data for a quick appraisal, rather than asking you to submit documents manually. Keeping your books in the cloud will ensure that you are ready to give online lenders access to your financial data for faster turnaround times. , Nick Chandy, ForwardAI
9. Check Reviews and Credentials
Online lending has a ton of benefits for business owners. However, borrowers beware: Not all online lenders are created equal, and many of them charge exorbitant interest rates and other fees. Check out their reviews and see if they’re a signer Small Business Borrowers Bill of Rights, , Sameer Gulati, ZenBusiness
10. Understand the Cost of Capital
Make sure you have a solid understanding of the cost of capital. Most of the non-banking lenders you will find online will advertise to you that they can provide funds quickly; However, they are also very expensive. Avoid taking expensive loans to meet short-term liquidity needs, as it can lead to long-term hardship. , Sean Frank, Cloud Equity Group
11. Talk to Your Banker First
The choice of online lending versus traditional lending platforms can crush your cash management. APRs range from 29.9% to 97.3% for some lenders in this area, and loans sometimes come with daily withdrawals from your bank account. Before borrowing online, talk to your banker, review your options for personal cash investments, and understand the risks. Making informed decisions equals success. , Cynthia Hemingway, Fourlane, Inc.
12. Be Prepared for Less Consumer Protection
Many online lenders do not provide you with the customer protection that banks do. The trade-off is that you can probably get more and faster money from an online lender – which is offered at a higher price (interest rate and fees) than a bank. The difference is that when times get tough, these lenders are more likely to take your loan back earlier than you expected, leaving you exposed and without the funds you need. , Aaron Spool, Events Advisory Group, LLC
13. Understand Potential Liability
Understand what you are signing and who is responsible for repaying if things don’t go according to plan. Most online lenders charge high interest rates and require a personal guarantee that transfers liability in case you fail, not your business. If you’ve been resorting to high-interest, short-term lending options to keep your business alive, it may be time to rethink your business strategy. , Joseph Orseno, tilt
14. Review Various Online Lending Options
Traditional business lending is primarily based on business and credit history. Even going the traditional route can take a long time. Online business lending will always be the fastest route. Some companies specialize in loans for bad credit, but the rates can be very high. Some lending programs use merit-based underwriting that does not rely heavily on individual credit scores. , Jared Weitz, United Capital Source Inc.
15. Consider the Trade-Offs
While online lending can be a faster and easier method, there are trade-offs that must be considered. Online lenders usually charge higher fees and have higher interest rates. By securing capital online, you are missing out on an opportunity to grow a business banking relationship. Strong business banking relationships typically increase access to capital over the long term. , Robert Reader, glass view
Credit: www.forbes.com /