The pros and cons of small business loans via online lenders
As the end of financial year approaches, many small business owners are considering taking advantage of the government’s $30k instant asset write-off. For many SMBs this requires access to finance.
While fintechs are a relatively new lending alternative for Australian businesses, small business owners are already flocking to use these online lenders, which begs the question as to why?
Online creditors often offer loan products that will better serve a small business owner’s need. Has your business hit a cash flow bump? A loan with an online lender could tide you over during this emergency. Do you want to purchase some new equipment fast? An online lender can approve a loan in as little as a few hours. Is there any wonder SMBs are embracing them?
What about the size of the loan? Unlike a big corporation that borrows in the 100s of thousands, if not millions, recent research by Oliver Wyman found those businesses borrowing from online lenders tend to borrow smaller amounts than from the traditional financial institutions. Similarly, the length of loans tend to be of a much shorter duration, suggesting SMBs are also using online lenders as a source for cash injections to help smooth out lumpy cash flow.
Then there’s the application process… Applying for a loan with a traditional bank can be tedious and time consuming. It often requires small business owners to submit significant paperwork and collateral for their loan (usually home equity). Not only does this leave a whole generation of small business owners out in the cold (I’m talking to you Gen Y), the lengthy submission process can mean by the time a loan is approved the business opportunity may have already moved on!
Online lenders offer simple application processes that accelerate the decision-making process. They use complex algorithms to ensure lendees match criteria and will offer a loan that is tailored to meet your needs. Estimates suggest it take 1/50th (yep you read that right) of the time to complete an online loan application as it does a loan application with a traditional lender. Sometimes a decision can take a matter of hours, meaning you have the money you need when you need it.
Then there are the payment options. Thanks to the rise of online accounting, lenders can have real time access to bank account, tax and other data to better serve their small business customers, so the likelihood of an SMB being unable to service a loan is limited as the lender has access to real data. Payment schedules can be varied and loan repayments can even be taken directly from a business’s cash flow, with options such as daily or weekly payments even a possibility.
If you’re considering funding for your business, it’s important you compare your options. Start by researching which loan type is best for you and ensure you get a thorough understanding of all the fees and charges. Lend’s Small Business Loans Guide is a great place to start.
As always, before you enter into any finance agreement, seek independent, expert advice.
This post originally appeared on Kochie’s Business Builders and is republished here with permission.