The Dos and Don’ts of Finding a Short-Term Loan Online
If you own a small business and spend much time online, chances are Google algorithms have pushed some ads for online funders onto your browser. These funders promise thousands of dollars to small businesses, even those with poor credit, with just a simple application and 8 – 72 hours to finalize the deal.
At this point, your too-good-to-be-true sense might be tingling. If so, pat yourself on the back: you’re approaching the online funding industry with the right mindset. That said, most of these funders do legitimately offer fast funding to businesses that might have a hard time getting capital from more traditional sources. If you’re cautious and do your homework, you can find a deal that meets your needs without tearing too big a hole in your wallet.
- Give In To High-Pressure Sales Tactics: If you decide to solicit multiple offers, be aware that you’re probably going to be walking through a gauntlet of high-pressure sales tactics. Remember that they really, really want to lend you money and that you have more leverage than you might think. State firmly that you’re considering offers and will give them an answer shortly.
- Ignore the Funder’s History: If a funder hasn’t been around very long, proceed with additional caution. Funders with an established history and customer base have, at the very least, done the bare minimum to pay their overhead and keep their clients happy. Newer funders aren’t necessarily bad news, but keep in mind that they haven’t been fully vetted by the small business community.
- Ignore the Fine Print On Liens: Some short-term funders will have you sign blanket liens. This kind of document essentially is a lien on your entire business. If you fail to pay back your loan, the funder can seize any of your business assets to recoup their loss. A few funders even require their customers to waive their right to challenge their debt in court. If possible, you should avoid dealing with a company that requires this.
- Assume You Can’t Find a Funder Who Can Help You: If your company has poor credit, no credit, or even just hasn’t been in business for very long, it can feel like you’re stuck in a Catch-22. Take heart in the fact that your situation is, in fact, quite common. With a little patience and some due diligence, you can probably find a funder that will work with you at (fairly) reasonable rate.
- Get Multiple Offers: One of the good things about the ease with which you can apply for online funding is that it’s pretty easy to get multiple offers in a short amount of time. You’ll never know for sure what kind of rate you’ll get from a funder until you have the offer in writing. Just be aware that most online funders will perform at least a soft pull on your credit history, so don’t get too carried away.
- Research the Funder: Given that American finance is frequently, shall we say “ethically challenged,” it’s good to know with whom you’re doing business. Luckily most funders tend to leave a pretty big online footprint of user reviews and complaints. Good places to start are Trustpilot and BBB. While many of the complaints and accolades are worth ignoring (ones that look like they were posted by staff or by customers who clearly were in the wrong), you can usually get a sense of where the company’s strengths and weaknesses are.
- Understand the Financial Product You Are “Buying”: Short-term financial products tend to function a bit differently than traditional banks loans. Whether you’re getting a short-term loan or a merchant cash advance, the repayment schedule is usually daily rather than monthly. Additionally, your loan probably won’t have interest rates. Instead, short-term financial products tend to front-load their costs into a flat fee. How they arrive at this number varies by funder, but your credit score is usually a factor. You’ll also want to be aware of what, if any, collateral you have to put up for the loan.
- Check Out Our Reviews and Resources: If you can excuse a little shameless self-promotion, it’s worth pointing out that Merchant Maverick reviews online funders and produces handy comparison charts and guides that can make your hunt for a good online funder a little easier.