Should I Seek Financing Online with Smaller Lenders?

Posted on /by Natalie Sisson/ in Business Resources

Obtaining business financing today is harder than it has been for decades.

Sadly, it’s the hardest for startups, especially those pioneering new ideas. The problem is that if the bank sees you as a high risk, the chances of you getting a loan aren’t high. Other types of lenders aren’t much better.

Although, today you can find options with a much less strenuous approval process. Yet, that easy approval comes at a price. In this case, the ‘price’ is literal as interest rates on this loan will be very high.

The question is, should you take the risk?

The answer is ‘only if you’re sure that you can take it’. This means you’ll need to consider all the pros and cons of using online lenders, then consider your business’s situation, and make the final decision based on that.

Why Can’t My Business Get Financing?

Before you move on to drastic measures, like taking a high-interest loan, you need to understand why exactly you can’t get any other financing. So bear in mind that not exploring all your options first is one of the business financing mistakes you can’t afford to make.

The most common reasons why an entrepreneur cannot get financing from a bank or an angel investor include:

  • Bad credit score
  • Bad business plan
  • You’re a startup (yes, financing for startups is so bad today that being one constitutes a legitimate reason why ‘big players’ might not want to give you money)
  • No collateral
  • Risky industry (check the general industry failure rate statistics to determine if it’s considered ‘risky’)

Are any of these the reason why you get rejected by traditional lenders?

Can you change something to get their approval? If you can’t, considering a high-interest online loan might be your best option.

Contemplating a High-Interest Loan: Enter Online Lenders

The decision to take on a high-interest debt is extremely important because it will have a great impact on your business’ success. Your ability to keep up with the payments on that loan is literally what will determine your business’ survival. Therefore, I implore you not to treat it lightly.

If you are confident in your ability to make enough money to keep up with all mandatory payments, and made calculations so you have numbers to back up that hope, you should start researching online lenders.

There are a great many of those to choose from today. However, you should never forget that not all of them can be trusted. Therefore, always start with studying lender data-driven reviews. You need to learn information about all possible financiers from independent sources as those are most impartial and objective.

Leading Online Lenders Worldwide: What You Need to Know About Them

The most important pros of using online lenders are:

  • Quick and easy approval process
  • Simple requirements for applicants
  • Money can get on your account within 24 hours
  • No need for a collateral

On the other hand, those loans have one very big con, which is the high interest rate. These also aren’t long-term loans, so you need to be sure that you’ll have the cash to start paying off the big debt right away. Missing even one payment on this kind of loan will bring its cost to you sky-high.

Leading online business lenders are different in every country. For example, in Australia it’s Prospa and Get Capital, and Capify. In the US the leaders are Lending Tree, SoFi, and Prosper. Find the companies that are accredited to legitimately offer loans in your country.

And when you find them, start looking for their reviews. You need to find two types of reviews. One are the articles written by independent experts which evaluate the lender objectively. The other is from the people who have already used the loan and share their experiences.

However, I’d like to remind you that the online forums, where you can usually find people ‘venting’ about their negative experiences, aren’t a trustworthy information source. You definitely should take them into account, but don’t base your opinion on them wholly. You should always prioritize expert opinions and independent reviews as best sources of information on online lenders.

So, Should You Consider an Online Lender?

A high-interest loan is a big risk, and you need to do your best to predict your business’s development from every angle before applying for it. However, the reality is such that you might not have a choice but to go with this financing option. It’s harder for everyone to get a loan these days, reports ABC News. And that situation isn’t likely to improve anytime soon.

But should you let this setback ruin your plans?

Definitely not!

As an entrepreneur, you need to make the most out of every opportunity. Online lenders give you that opportunity. However, before you use their help, you need to prepare and set everything up in a way that will guarantee you some immediate returns.

This kind of forward thinking and preparation are what will make your business succeed.