Whether you are starting a brand new business or trying to keep an old business running, financing is the biggest issue you face as an entrepreneur. While there are a growing number of businesses that don’t require all that much capital, most businesses have expenses right from the start. And in a crowded market, getting that financing can be difficult.
We all dream of a big investor becoming as excited about our venture as we are and pouring money into it. However, that type of financing is rare, and even those companies who do get financing like this often need to supplement it with money from elsewhere.
It is in this context that online business loan providers have swooped in to save the day. They offer instant cash loans to businesses struggling to survive. For those who are in desperate need, it can seem like a no-brainer. For others, who have time to look for alternative options, it may appear to be the most attractive solution.
Unfortunately, these quick online cash loans are often exactly as they sound – too good to be true. They come with high interest rates and unfavorable terms. Many businesses that turn to these online loans end up regretting it, with the loan proving to be the nail in the company’s coffin.
Because of this, many providers are considered predatory lenders, waiting in the wings to feed on struggling businesses. It does not matter to them whether or not the business succeeds, as long as they are raking in the interest on a loan that ends up costing far more than it was worth.
That said, online business loans can actually help your business. If you are in need of funding, and don’t have many other options, fast business loans can be just what you need. However, you need to know what to look out for so as not to fall into the predatory trap.
Here’s how to safely get the best business loans.
Consult with an objective third party
An online business loan should not be a last hurrah. Those who decide it is worth the high interest need to be confident that they can pay it back. Unfortunately, we often fool ourselves into thinking we are not desperate. We convince ourselves we’ll be able to pay back the loan, even though all evidence points to trouble.
This is when you need to speak to someone who is a little more objective than you. Ask a mentor or even a friend with some business experience whether your thinking is sound. They may well agree that an online business loan is the best option for you. On the other hand, they may force you to face reality, preventing you from making a terrible financial decision.
If you are reluctant to ask a third party for their opinion, you likely already have your answer. You know deep down that this is not a good idea.
Choose a reliable company
Once you have decided to go ahead with the loan, you need to be careful about which provider you choose. The provider that seems to promise the most may well be a disreputable business that operates on very shaky ground.
You should choose the online lenders marketed as the “best” for your business. If they have a good reputation among both clients and experts, they are a much safer choice. Not all online business loans companies operate in the same way. While they almost always use high interest to cover the risk of the loan, some have more scrupulous regulations in place to prevent loans being given when there is no hope.
Put a plan in place before applying
Many struggling business owners apply for the loan in the knowledge that they need the money. However, they don’t think about exactly how they are going to use the money and pay it back beforehand. This makes sense, considering many businesses that get these loans know that they have little chance without an influx of cash.
But the lack of planning is often just another way of avoiding facing reality. The idea that a bit more money in the bank will save the business is all well and good, but the fact that the individual applying is delaying doing their homework indicates they are grasping at straws.
If you want to apply for one of these loans, sit with the numbers for a while. Calculate exactly what you need and mark what you will use the money for. Make a payment schedule, and assess whether you are likely to manage to stick to it. Are you relying on an instant turnaround in business for your monthly installments? If so, how likely is it that this turnaround will happen? What will happen to your financial situation if this does not pan out?
You need to think hard about these questions. Once you are able to answer them confidently, without equivocation, you can go ahead with your loan.
Take as little as possible
It is always tempting to apply for more than you need, so that you feel you have a cushion available. However, this only serves to increase your interest rate and make your loan even more expensive than it already is.
Take as little as possible, that will allow you to fund your business processes while paying it back. Even if they are offering far more than that, it is not worth taking on that added expense.
Fast business loans are a trap for many struggling companies. They can prey on desperate business owners who feel like they have no other options. But the best business loans do provide a way forward for some companies which just need a quick influx of cash.
More important than anything is that you are honest with yourself. Desperation can cause us to go into denial, so speak to those around you to get a more objective opinion before taking out one of these loans.