6 Tips to Find the Best Online Loan for a Small Business
So you’ve been refused a loan by your bank that you so badly need and are looking for an alternative route. In fact, research shows that nearly forty-five percent of loan applications from small business owners get refused by banks and other financial institutions because of various reasons such as the applicant’s poor credit score, financial constraints and lack of overall credibility.
That’s exactly where an online lending platform comes into use and skips all conventional lending methods to disburse loans. These have become an indispensable part of the FinTech sector and merrily allow smaller businesses to go loan shopping by skipping their local banks.
However, you need first to work out the correct amount of capital required for growing your business based on the loan at the lowest interest rates and the most reasonable repayment time. It also needs to be borne in mind that not all digital lenders are equal and your choice must be limited to those who offer the best financial options like long-term loans with the lowest interest rate, easy monthly installments as also the lowest APR.
Getting a super expensive short-term loan may turn your business dream into a financial nightmare overnight. So remember the following guidelines when zeroing in on the ideal online lender:
Research the loan provider’s options
An absolute and basic must. Since the whole concept of an online loan is technology-based, start by getting into Google to perform that crucial due diligence study. You begin by exploring the lender's real worth and not his flashy website or tall promises of easy and instant funding. Your ideal lender should be transparent and want a single-digit interest rate from you.
Additionally, he should be offering long term loans for up to 10 years at least, some great customer service, as also online security that’s verified. It also pays to read unbiased reviews that appear on sites like Google+ and SmallBusinessLoans.co Once this is done, ask the prospective lender for appropriate white papers and/or case studies that give you a clear picture of him and his customers.
Get your business records straight
Once you make a short list of prospective lenders after deciding to go for external funding, you definitely need to straighten all relevant business records before approaching the lender. This, of course, doesn’t pertain to paperwork only and extends to getting your business plan and cash flow statements in order also.
This will give you a clear picture of the amount you require to borrow; and which payment types are affordable. Numerous available low-cost or free resources help you figure it out. You can check with the local SBA or Small Business Administration Development Center or SCORE office and attend their workshops or individual mentoring sessions.
Erase bad debt
Should you have fallen into the clutches of a high-priced lender and have landed yourself in that dreaded debt trap, skip out at any cost! Remember, expensive debt can always be refinanced, and you stand to save thousands from the monthly budget by way of a low-rate, long-term loan. In such cases, an SBA loan typically has the lowest APR possible.
Moreover, another distinct advantage of an online marketplace is that it offers an SBA loan exclusively and moves considerably faster than a conventional lender. It also helps match a small business to a SBA-preferred lender that's right for the former. This makes it ideal for getting a fresh start.
Beware of unscrupulous lenders! There are many such in the virtual marketplace who disguise their terms and conditions with misleading or confusing pricing information. They usually refrain from clearly presenting the right APR or Annual Percentage Rate and obscure their pricing by way of a general “rate,” “cost” or “factor rate.”
For instance, a borrower’s “factor rate” of 15 percent could actually be equal to a huge 50 percent interest rate in actual terms! Remember that the APR also includes fees, interest rate, and the loan term. So staying focused on an all-in-one figure is essential so that multiple lending options effectively can be compared. If the lender when asked, doesn’t give an APR, he’s best avoided.
Fees and associated costs deserve special attention
If the lender gives out the interest rate only and doesn't disclose other fees accurately, it becomes difficult to calculate the right APR to determine whether you are getting the best deal. Worse still are other factors like processing and origination fees, application fees as also other assorted costs. This calls for ensuring first the total amount of funds that will get deposited into your account after all fees have been paid and then following up regularly.
Also, prepayment penalties need to be looked into and every loan document should be carefully read between the lines before it is inked. However, if a cash-advance lender offers you the option of refinancing your loan advance before its term ends, avoid it. What you'll get in the end is an early-payoff penalty on the first loan along with fees for refinancing. These together could drive the APR sky high.
Watch out for impossible offers and teaser rates
A legitimate and honest lender will always offer loans that come with transparent and reasonable terms. However, his unscrupulous counterpart is most likely to offer an irrationally low rate. This is a typical bait-and-switch tactic. When you urgently need capital, it’s always tempting to take any offer at its face value. A spot of skepticism here, however, is called for and examining the loan conditions and details with a fine comb is vital. Should you overlook them, you could end up with a loan cost that’s ready to hit the roof!
Finally, it always pays to remember that for any small business, any loan taken should help it reach its specific growth goals. There isn’t a penny to be wasted or thrown away as it will undoubtedly erode your bottom line. You need to keep looking until you’ve found the right loan and anything that sounds a little too good in all probability could be detrimental to the business in the long run.
Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.