Here are a few guidelines to help you determine which online lender will be a financial fit.
Once you’ve made the decision to seek funding, get your business records in order before starting the process with any lender. This suggestion doesn’t pertain only to paperwork--though it's vital to make sure you're organized. Take a look at your cash flow and your business plan. How much money do you need to borrow? Which types of payments can you afford? Several free and low-cost resources exist to help you figure it all out. Check with your local SCORE office or Small Business Administration (SBA) Development Center for workshops or one-on-one mentoring.
If a high-priced lender is keeping you in a debt trap, get out of it! You can refinance expensive debt and trim thousands from your monthly budget by securing a long-term, low-rate loan like the one you should've taken in the first place. SBA loans typically have the lowest possible APRs. Online marketplaces that offer SBA loans exclusively can move faster than a traditional lender. They also can help match your own small business to the SBA-preferred lender that's right for you--all of which makes them an ideal place to get a fresh start. Learn more at SmartBiz, the company I founded to offer greater options to fellow entrepreneurs.
Technology is your friend, so get ready to Google. It’s crucial for small business owners to perform due diligence. Exploring a lender's real substance means looking beyond flashy websites or promises of instant funding. You want a transparent lender that offers single-digit interest rates, long terms (ideally as long as 10 years), stellar customer service, and verified online security.
Legitimate companies offer real loans with reasonable terms and transparent terms. Many lenders will advertise a rate "as low as," though few borrowers actually will get it. Don't let yourself be lured into a bait-and-switch. When you need capital, it’s tempting to take an offer at face value. It's healthy to be a bit of skeptic. Assure you're getting what you expected, and don’t ignore the details. If you do, you could find the cost of your loan skyrocketing.
Unscrupulous lenders will disguise their terms with confusing or misleading pricing information. Instead of clearly presenting a true Annual Percentage Rate (APR), they might obscure their pricing as a general “rate," “factor rate,” or “cost.” According to the Responsible Business Lending Coalition, a borrower’s 15 percent “factor rate” actually could be equivalent to a 50 percent interest rate! The APR includes interest rate, fees, and loan term. Stay focused on that all-in-one figure so you effectively can compare different lending options. If a funder won't give you an APR when asked, be cautious.
If your provider gives only an interest rate and doesn't accurately disclose other fees, you won’t be able to calculate the APR and determine whether the loan is a good deal. Even worse, you might still be on the hook for origination fees, processing fees, application fees, and other costs. Make certain you know how much money will be deposited into your account after fees are paid, and follow up. Ask about prepayment penalties and read your loan documents carefully before you sign. Be aware that many cash-advance lenders will offer the option to refinance you advance before the end of the term. Don't fall for it. You'll end up with an early-payoff penalty on your first loan plus fees associated with your refinance. Together, these can drive your APR into triple digits.
Finally, remember that a small business loan should fit your individual company and help you reach specific growth goals. Keep looking until you find it. Because if it sounds too good to be true, it's probably bad for your business.