Small Business Loans

There has been a rapid shift in the way small businesses are seeking loans as the conservative approach of traditional lenders has prompted enterprises to look for alternative funding options. One such option, which is becoming popular among startups is online alternative lending platforms. The main feature of the online lending platforms is the convenience and ease of lending, unlike banks, which take several weeks to process a loan application.

The key objective of online alternative lending platforms is to lend funds to businesses, who fail to get through the stringent compliance and regulatory process of traditional banks. There are two lending options available online, which are as follows.

Short-term online lending – Short-term lending is typically extended for a loan amount ranging from $5,000 to $150,000. The loan tenure varies in between 3 months to 24 months. The positive aspect of this loan is that it can be availed on short notice even if the credit score is below average. However, the interest rates charged for such lending is excessively higher. Since lenders use a different scoring method to determine risk, therefore, it is apt for many startups, which have low credit score and can source funds through this channel at a faster speed.

Long-term online lending – Unlike short-term lending, long-tenure online lending gives a close competition to banks in terms of pricing. Loan amount under such platform ranges in between $25,000 to $250,000 while the tenure varies between two years to four years. Though interest rates can be little higher than those charged by traditional lenders, the option is worth taking, given the speed at which loans are disbursed.

While online lending alternatives are rising as an attractive channel for startups, care must be taken by the business owners to understand and spell out the fees and hidden charges associated with such platforms. An entrepreneur should cross-check the reputation and track record of online lenders to ascertain if they are not sharing the business information with any unauthorised personnel or company.