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It is now easy to get online business lending as long as you qualify. The internet has opened up so many avenues to get them. As of 2021, global digital lending platforms had a value of $5.84 billion.
Experts predict the industry will see a compound annual growth rate (CAGR) of 25.9% by the end of 2030.
Some benefits of online business lending platforms include optimized loan processes. The decision-making process is faster. There is also better compliance with regulatory rules. Finally, higher efficiency in loan applications and approvals will drive market growth.
Now, if you’ve been thinking of applying for online business loans, read this article. We will share critical considerations that you need to know.
1. Your Credit Score Matters
Many lenders prefer to give loans to people with good credit scores. That is the best way to determine your creditworthiness. True, the perfect credit score is ideal. But you can still qualify with a score of 640 to 700. Anything below that can make it difficult for you to qualify.
Keep in mind that a poor credit score does not totally lock you out. Lenders have specific loans for people with bad credit scores. The downside to such business lending is the high-interest rates.
The lenders, online or offline, charge higher interest to guard themselves against risk.
It is of utmost importance that you keep a close eye on your credit report. Access one free copy every year from the reporting agencies. This includes Equifax, Experian, and Transunion.
You should have a separate account for your personal and business finances. That way, one aspect of your life does not interfere with the other.
Impact of Errors on Your Credit Score and Why You Need Credit Repair Services
A bad credit score does not always mean you cannot keep up with debt repayment. Errors or inaccuracies can affect your credit score. A failure to remove a collection account from your credit report also matters.
So who needs credit repair? The simple response is anyone and everyone who has a credit report. To avail of online business loans, you have to maintain a good credit score. You can ask credit repair services to fix any inaccuracies or errors in your credit report.
Rectifying such mistakes early can help avoid impacting your credit report.
Remember, the perfect credit score will make it easy for you to get business loans. Further, you get better rates and terms.
2. Understand When It Is Best to Go for Online Business Lending
Online business lending platforms are the best under the following conditions.
- When you want quick access to small cash amounts. A disadvantage of offline applications is the amount of paperwork. Then there is the long waiting period as the lenders decide whether to avail the loan to you. Indeed, some qualification criteria are so stringent, a startup or small business may have challenges meeting them.
- Emergency situations that need quick cash bailout. Online lenders can provide cash in less than 24 hours. All without needing to have a face-to-face meeting with the loan officer. The only thing you need to do is provide a bank account where they can transfer the money.
- If you are looking for shorter repayment periods.
- When you need money outside of regular working hours. These lenders work day and night, even during holidays. So, you can always reach them at your convenience.
Online lending platforms are flexible, and the requirements are a bit more lenient. But you still must ensure you pay the loans as you should. If not, it will negatively impact your credit score.
3. Research the Reputation of the Online Lender
Before opting for online business lending, do some research on the online lender. One critical factor to check is their reputation. In this internet age, there is no reason to skip this step. Forget about what online lenders say about themselves. Most of it is marketing language to get customers.
The best information will come from customer reviews and testimonials. You could save yourself a lot of heartache this way. Other things to check about your online lender are:
- Whether the online lender runs hard checks (we’ll discuss more of this in the next point).
- Whether the online lender has a physical location besides the digital platform.
- Clear information on the website.
- Many ways of reaching the customer support team. These should include live chat, phone, email, and live agents.
Be wary of any platform that seems to be pushing you to take the business loan quickly. They should give you relevant information and allow you to decide after deliberation.
4. Be Careful About Hard Credit Inquiries
The convenience and ease of online business lending can also be a disadvantage. Don’t be tempted to apply for business loans on many websites. What you need to know is that every time a lender runs a hard credit inquiry, it impacts your credit score. Every run could cost you 10 points.
Furthermore, the hard check will reflect in your credit score for up to a year. So only apply for a few online loan facilities at a go. Please note: even the best credit repair professionals cannot remove a hard check inquiry from your credit report.
5. Look At the Terms and Conditions of the Online Loan Facility
At this point, you should have clarity on the type of business loan you want to apply for. Are you looking for working capital to meet day-to-day operational expenses? Or maybe you need equipment financing. This type of lending comes in handy if you need to buy machinery or other business equipment. Your business needs will determine what you should apply for.
Some lenders will need collateral, while others won’t. Take the time to learn their requirements before signing up.
As we said above, the perfect credit score can offer you fantastic loan rates and terms. Indeed, the most significant advantage is competitive interest rates. But, before signing any business loan documents, take time to check out the:
- Loan interest based on the loan amount. Factors that will impact interest include income, credit score, and interest ceiling rates. Make sure you run a comparison with other lenders, no matter how attractive the offer seems.
- Loan repayment terms and if you will be comfortable paying.
- Repayment process/timelines if monthly, biweekly, or quarterly.
- Extra fees that you will be liable for. These include rescheduling fees, processing fees, and a range of others. Less reputable online lenders may hide such costs. You will only get to know when you start repaying. Hidden fees can make the loan very expensive in the long run. Reputable lenders will have no problem sharing a transparent breakdown of the loans.
Online lenders have made it possible to get access to quick business loan facilities. There are also many lenders, thus greater chances of getting financing. But pause before you sign any documents. You must take the time to check out the factors we have shared above.
Research the reputation of the lender and read reviews. Also, go through the loan terms and policies with a keen eye. Ask for a complete breakdown to ensure there are no hidden fees.
Finally, remember the importance of a good credit score for Business Fundability™. For the business, hire credit repair professionals to keep an eye on your credit report. They can also correct any mistakes which could impact the score.