Business owners have never had more options for lending than now. There are all the traditional avenues, SBA loans, community bank lending, equipment leases, factoring and asset based lending. Now there is also a multitude of Online business lending companies.
Online lenders have mastered the art of being fast and easy! Business owners are promised funding sometimes the same day that they apply. And any business that can fog a mirror is approved! As we all have been taught, if it’s too good to be true it probably is! Borrowers can find capital quickly online, what takes longer to find is the true costs of the loan. Confusing loan documentation, hidden fees, daily draws from the business’s bank account and an overall lack of transparency have trapped too many business owners. Forcing them onto a treadmill of borrowing more money to just keep making payments.
We have talked with too many business owners that were trapped by stacked loans, not knowing that they have personally guaranteed these loans and all their assets had already been pledged to the Online lender. Annual percentage rates north of 50% had these companies in a death spiral. This is why the OCC and many state Attorney Generals are investigating how to stop these usurious and predatory practices.
Before agreeing to accept funds from an Online borrower ask these questions: Is the term of the loan clear? Is the interest rate clearly stated? What is the payment schedule? Will payments automatically be drawn out my bank account? What are the penalties and interest for a missed or late payment? Is there a grace period to make up a missed payment? Are there servicing fees or other miscellaneous fees? Is the lender filing a lien against my business? Are you personally liable for not only the principal but also for accelerated interest?
For forty years we have known the value of fast funding for business owners. Emergencies happen, opportunities present themselves, and business owners have to get additional capital. We often go from receiving an application to buying invoices in 24 hours. But we also value clarity and transparency. Our clients know all the costs involved in the transaction, what collateral is being pledged and what the owners commitments are before any documents are signed. This is a lesson that the Online lenders have not put into their algorithms!