bake - Febuary 2016 - 12

management

Online Financing
Small businesses are the lifeblood of the US economy, and
ﬁnancing is the viability of a small business. Small business
owners rely on business ﬁnancing to fuel their growth, to
purchase new equipment, hire additional staff, and invest in
new opportunities.
Unfortunately, major ﬁnancial institutions are not lending in
amounts under $1 million like they were pre-recession, which
means they aren't lending much to small businesses. "While
large business loans have soared to record levels, small business lending is losing ground," writes Ann Marie Wiersch,
a senior policy analyst in the Community Development
Department at the Federal Reserve Bank of Cleveland.
In response, a rise in online business lending is sweeping over

These factors include but are not limited to the following:
* Terms of repayment - Online lenders provide business

the small business lending space. In a recent Federal Reserve

owners with a variety of repayment terms. Depending on the

survey 18 percent of small business owners reported looking for

lender, the short-term business loans may range from 3 to

capital online with a 38 percent approval rate, compared to a 31

24 months while the long-term loans range from 1-5 years.

percent approval rate at large national banks. A new generation

It's also important to note that methods also vary depending

of online lenders is surfacing with the promise of an efficient,

on the lender. Some online business lenders require a ﬁxed

streamlined application process with quick turnaround times

amount to be paid on a daily or weekly basis via ACH, while

and higher approval rates.

others require a traditional monthly payment.

With online business lending a small business borrower

* Interest rates - Online business loans tend to have higher

ﬁlls out an online application, which generally takes 30-60

interest rates compared to traditional bank loans. Look for

minutes. They get a response within hours and can be funded

online lenders offering competitive interest rates, and keep

in a matter of days. This process is an attractive solution for

the loan amount small. Instead of paying thousands of dollars

small business owners who on average spend 26 hours on the

in interest, ﬁnd a loan with a good interest rate. Although

traditional loan process and wait weeks or even months for an

the rates offered online are higher compared to bank loans,

answer from a bank.

they are typically lower than options such as merchant cash
advances.

Many online business lenders use technology to evaluate
the risk of a business differently from traditional lenders. For

* Security - When you apply for a business loan online, it

example, online business lenders may access a company's

requires you to furnish sensitive data, such as a Social

online payment transactions and cash ﬂow via their bank

Security number, business information and bank account

accounts or analyze other digital data points to review a

details. Look for encryption or security measures on the site

business.

such as SSL (Secure Socket Layer) encryption and privacy
measures - which should be disclosed on the website.

Although online business lending offers speed, convenience,
and the opportunity to get funding fast, there are important

MARCO CARBAJO IS A BUSINESS CREDIT EXPERT, AUTHOR, SPEAKER,

factors small business owners need to look out for.

AND FOUNDER OF THE BUSINESS CREDIT INSIDERS CIRCLE

12 < FEB 2016 | bakemag.com

http://www.bakemag.com

bake - Febuary 2016

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