We see a lot of small business owners shopping around for financing, and many mention online lenders. Sometimes, yes, a short-term online loan can be helpful for an entrepreneur in getting the capital needed for scaling their business. Yet, we see many business owners getting swept into the debt-cycle of stacking loans, unfair repayment terms, and exorbitant interest rates.
Are Online Loans Expensive?
An online loan typically averages near $80,000 in extended capital with higher interest rates than a bank loan. This is because typically online loans are geared toward entrepreneurs with less than perfect personal or business credit. Additionally, the risk of small business failure is high, with only half of businesses making it past their 5th year and only 30% making it to year 10.
What to Look for in an Online Loan?
Beyond the APR of an online loan, be sure to factor in the fees the lender may charge. Online lenders have developed a reputation of nickel and diming their applicants with due diligence fees, start-up fees, filing fees, payment fees, and all sorts of hidden fees within the product. Check out reviews of the company, the Better Business Bureau, and their website to get a feel of what kind of service you can expect. Try calling a few lenders and seeing what their client relations would be like.
Small Business Loans or Invoice Factoring?
The benefit of invoice factoring is that it shares the same ease of application and speed of funding as online loans. Yet Eagle Business Credit–a factoring company in Woodstock, Georgia–does not have hidden fees or startup costs for business owners looking to factor. Accounts receivable financing involves selling your receivables to a factoring company at a discount for immediate payment. Rather than waiting the duration of agreed upon credit terms–whether they are 30 or 60 or 90 days–your business has the available working capital to continue growing. Since the sale is already done and the money is yours, there is no repayment to make to a factoring company. Instead, the fee–typically between 1 and 4% for Eagle clients–is taken from the invoice amount and your business has the improved cash flow to expand.
CEO Ian Varley discusses online loans and invoice factoring. Which small business funding method is right for your business? If you are looking to avoid daily, weekly, or monthly repayments then be wary of online loans. Factoring is debt-free, flexible, and grows with your funding needs.