6 tips for navigating online loan options #FinanceYourBusiness
The following excerpt is taken from the Entrepreneur’s Book Finance your business. Buy it now from Amazon | Barnes & Noble | itunes
Small business owners may have difficulty obtaining capital from a bank if they have been in business for less than two years, have a credit score below 640, or need less than 250,000. $. Fortunately, there are alternatives to the classic bank loan. Online lending has been a source of innovation and promise for small businesses looking to invest and grow. According to statistics from Harvard Business School, although the total volume of bank lending to small businesses declined 3.1% in 2014, online lending to small businesses doubled.
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But how can small business owners save time and get the most out of the online lending process? Here are six key tips and ideas for applying for a small business loan online:
1. Make sure your finances are in order.
Online loans offer more adaptability and flexibility than traditional banks, but you still need to provide strong business records that confirm that your business is viable and can repay the money you borrow. Start with the basics: Make sure you have a registered business name and have incorporated your business with a tax ID number and business checking account.
2. Use online accounting software.
Digital tools like QuickBooks, FreshBooks, or Xero can help even the smallest businesses manage their finances accurately and efficiently. With your information available in digital form, it is easier to track your finances and prove that you are a desirable candidate for a loan. The automation provided by Kabbage allows you to connect your online accounting software to assess the health of your business, so that these online tools can improve the ease and likelihood of getting approved.
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3. Separate business finances from personal finances.
Your small business should have a separate financial identity from your personal finances. If you pay bills with personal checks or credit cards, you run the risk of overcomplicating your finances or not passing an audit. Set up a separate bank account and credit card to manage all of your business expenses under your business name.
4. Understand the fees (especially hidden fees) of online lenders.
Pay attention to the fine print of any loan application. Ask questions up front to make sure you understand the loan fees, interest, loan installments, and any other costs you will need to pay for your loan. If there is something you don’t understand, be sure to ask before signing on the dotted line.
5. Look for the qualities of each lender, such as customer service, price, etc..
Other than access to capital, what do you need most from your small business lender? Compare your options and read customer reviews on sites like Trustpilot. The cheapest loan option might not always be the best solution, especially if other small business owners are reporting hidden fees or issues with customer service.
6. Keep an eye on safety.
Getting a loan online may seem riskier than going through a traditional bank, but a few basic precautions can help protect your personal information. First, research each potential lender to make sure the business is reputable. Second, confirm that you are sending financial information through a secure connection to a website (https: //). Finally, beware of lenders who ask for an upfront application fee or an immediate down payment before your loan is approved. Legitimate lenders will include all fees as part of the overall repayment plan rather than charging you up front.
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There has never been a better time to get financing online for a small business. Using these tips can help you assess your options for getting the financing you need to grow your business.