Online lending has become a popular option for small businesses seeking financing, because it offers relatively easy applications and access to money. However, these advantages are often outweighed by unrealistic or unclear payment terms and other issues that can cause significant cash-flow problems for small business owners. How do you know that the lender you choose is the right one?
In this video, Yahaira Nunez, Assistant Vice President of Business Advisory Services at Excelsior Growth Fund (EGF), outlines three warning signs that small business owners should look for before making any decisions about online lenders.
Warning Sign #1: Loan Terms, Prices and Fees are Unclear
The first warning sign is that loan terms, prices and fees are unclear. Make sure that the information provided by the lender clearly states the interest rate and any fees associated with the loan. If a potential lender won’t give you that information up front or is hesitant to explain it clearly, take that as a warning and move on.
Warning Sign #2: Payment Terms Are Aggressive
The second warning sign is an aggressive repayment term (this is the amount of time over which the borrower makes payments). Many online lenders will offer terms that are one year or less, which is difficult for most small businesses to meet (unless you are specifically in the market for a short-term loan). In addition, with predatory lenders, payments are usually required on a daily or weekly basis and are directly taken from the business’s checking account, too. Before agreeing to any loan, verify your loan payment, how often you must make it and how long the loan lasts – there’s a very big difference between owing $500 a month, or $500 a week, or $500 a day, and it’s up to you to ensure that you understand the terms of your loan.
Warning Sign #3: There Are Unexpected or Unnecessary Obstacles to Paying the Loan
The third warning sign is unexpected or unnecessary obstacles to paying off the loan. For example, predatory online lenders will often throw in surprise fees or penalties for prepayment to discourage you from paying off a loan early so that they can collect more interest paid over the life of the loan.
The advantages – quick applications and easy money – that many online lenders offer often are too good to be true. With these tips, you now know how to avoid a predatory online lender.
Need more help?
To make the smartest decisions for your business, it’s important to know which resources are available. Contact EGF’s Business Advisory Service team today and learn about ways that we can help.
About Excelsior Growth Fund
Excelsior Growth Fund (EGF) helps businesses in New Jersey, New York and Pennsylvania grow by providing streamlined access to business loans and advisory services. EGF’s signature product, the EGF SmartLoan™, provides up to $100,000 in fast, transparent, and affordable financing through a secure online platform. Larger loans up to $500,000 are also available. EGF is a nonprofit organization and is certified by U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Learn more at www.excelsiorgrowthfund.org.