Seeking money online rather than seeking from a bank may be the best option for your startup.
The US economy may be rebounding, the unemployment rate is steadily declining, and the employment rate has risen to its highest level in nearly two decades. But one thing that has not recovered from the financial crisis is the small business loan. According to the Wall Street Journal, the number of commercial loans under $1 million has fallen by 14% since 2008 due to reduced risk expectations for most US financial institutions.
Fortunately, however, this small business capital crisis has spawned a new class of startups designed to provide an up-and-coming small business with a way to circumvent banks and ensure that they are in desperate need of funds to grow their business online. These online credits come in a variety of shapes and sizes.
These are lenders like OnDeck, which offer loans ranging from $5,000 to $250,000 for 3 to 24 months and require daily payments. Kabbage is a similar lender offering loans from $2,000 to $100,000 for up to six months. There are also point-to-point lenders like Lending Club, which connect borrowers (primarily consumers) with investors, including institutions and individuals. LendingClub offers loans of up to $35,000 for a duration of time.
These new online platforms provide entrepreneurs with three key things that bank loans typically cannot do:
Get funds quickly
According to a 2014 survey by the Federal Reserve Bank of New York, average small businesses spent a full 24 hours searching and applying for credit. The approval process for traditional banks can take several weeks, and many small businesses are still rejected. However, for online loans, business owners can apply for loans online and find out if they are eligible within a few minutes.
Online lenders also use more powerful data sets to determine if an applicant is eligible for a loan. While banks may consider factors such as personal credit history and details of the size of the company and its industry, other lenders typically evaluate thousands of data points, including social media campaigns and QuickBooks records, to determine eligibility. They use technology to ensure they have the most comprehensive picture of the applicant and therefore will not be rejected for any reason.
Better terms
In general, banks are bloated institutions, in trouble, and all of them are middlemen, all of which add extra costs to each transaction. This is one of the reasons why banks are more willing to approve larger loans because the processing price of microfinance is still high and their profits are meager. However, because online lenders are online, they can reduce the cost of approving loans.
Many of these online platforms use software to determine loan eligibility, or let a group of investors decide whether a business is worth buying, rather than passing a stack of paperwork by reviewing the assembly lines of bank employees in each line of the application. funds. By eliminating a layer of inefficiency, these platforms save large amounts of money in the form of better loan terms and pass them on to borrowers.
Much less paperwork
That is to say… no paperwork. A new generation of online lenders learns from the bank’s mistakes and designs their application process as simply as possible. In some cases, this means just filling out some basic information about your company. In other respects, this means uploading a bank statement. But these do not require personal access to the bank or extensive dialogue with the lender.
For time-critical business owners, the seamlessness of online access to loans may be the biggest benefit.
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