Small business borrower beware. When you're taking a loan, you're putting your future on the line, and you will be responsible for paying it back. And while getting it on-line might be the fastest, easiest and most convenient way to do it--it could also be the most expensive and detrimental to your cash flow.
I read countless stories about how "online marketplace" lenders are going to take over banks. I see hundreds of ads pushing business owners to apply for speedy loans and scaring the daylights out of business owners about taking a traditional route.
It feels to me like the old days when I would hear that the internet would take over newspapers and shopping malls. The internet has had a dramatic impact on this industries but guess what--many people are still going to the mall and reading the newspaper.
The same will be true with loans. The internet will have an impact--but on-line lenders will not be the only show in town.
The most important thing for a small-business owner to realize is that it doesn't matter where their loan is coming from or how sexy or simple the process is. What matters is that each business owner gives themselves the time to make an informed and intelligent decision.
The ads are compelling. One on-line broker actively promotes a "Lowest Rate Guarantee" and then if you read the fine-print, it's only for on-line lenders. In my post last week, I told the story of a business owner who was offered a short-term on-line loan with APR's from 57--100 %. With a few extra weeks of work, he will get a revolver from an off-line alternative lender with an all in APR in the low 30?s. This offer is far from ideal, but it's a lot better than his previous offer.
Here are five tips for a business owner or entrepreneur looking for a loan.
- Don't wait for an emergency--think and plan ahead. The best time to get a loan is when you don't need one.
- If it sounds too good to be true--it probably is.
- The difference between an extra few weeks and few hours of work could be tens of thousands of dollars a month.
- Try to get at least two different loan offers--before taking one.
- Make sure to speak with at least one advisor or mentor--before accepting an offer.
Finally, don't be shy or bashful. Building a business is tough and difficult work. There will be times in the journey when you will need capital. Sometimes the reasons are to support growth, and other times the unexpected happened. You are not alone. But when you're in the situation of looking for money, don't feel vulnerable. Get the support you need. A bad loan could ruin your business.