When you’re a small business, you have to get help wherever you can. Getting capital from a bank isn’t easy, especially if your company is under two years old or if your loan is ironically too small. The good news is that traditional bank loans aren’t the only option anymore. Online lending is relatively new but is where new businesses have gone knocking. The problem you face is how to get the most out of it.
1. Do Your Due Diligence
You need your online lender to have more than capital. Your small business needs someone trustworthy. The future of the company is in the lender’s hands. Don’t just give your needs to the first lender you find. Do research and read reviews out it. Low-interest options aren’t always the best, especially if their customer service if less than stellar.
2. Pay Attention to Security
The only thing the internet changed about security is that you have another thing to worry about. Nothing is truly safe online, which is likely your first concern when online loans came to mind. Fortunately, it’s possible to conduct online transactions without exposing personal information to would-be thieves.
The first thing you should do is make sure that the lender is reputable. Next, make sure that you only input sensitive information when you have a secure website connection. Lastly, stay away from lenders who want application fees or down payments. These are usually scams, since lenders will roll those costs into your repayment plan.
3. Get Your Books in Order
While online lending is generally more flexible, which is good for your small business, it doesn’t mean that they’re going to loan just anyone. Just like a traditional bank, they’re going to require proof that you’re not out to scam them, that your business is viable and can make enough money to pay them back.
This means having your books in order. Documentation using online accounting software can help make the process smoother, but it doesn’t stop there. Basic documentation, such as a registered name for your small business as well as your tax ID numbers, will also help make a convincing case.
4. Keep Personal Finances Apart from Your Business Account
While your personal financial future is tied to your small business’s future, that doesn’t mean you should mix the two accounts. When you pay for business items using your personal cards, you run the risk of tangling up your finances or making it difficult to pass an audit. Keep the two accounts separate. Make a bank account for your business, as well as a business credit card. All business purchases and expenditure should be done under the small business’s name.
5. Sort Out All Relevant Fees – Especially the Hidden Ones
The fine print is there for a reason – the important details on loan fees are there. It’s difficult to read, but it’s important. You’re not getting money for free. You’ll have to pay it back eventually, and with interest. If there are some difficult-to-understand details, ask your lawyer, accountant, or the online lender. Don’t sign anything until you understand what you’re expected to repay.
6. Keep an Eye on New Technology and Lending Standards
The traditional means of gauging a business’s creditworthiness may be changing and becoming less biased in their approach. Consider how payment processing firm Square is now using AI and machine learning to automatically offer credit to eligible businesses based on their existing transaction and business data. In a recent podcast interview with Salesforce, Michael Coscetta of Square summarized this new lending trend as follows:
“We use the data we have at hand. It’s an amazing machine learning-driven model of having real-time data. Instead of asking a business what your revenue is, we don’t need to ask; we already know. We already know what you’re charging. We can see inventory amounts. We see how many employees the business potentially has. Things like FICO scores and credit checks, those are traditionally very biased means of also offering loans or not offering loans. Typically, they also result in quite a bit of discrimination about who gets a loan, especially through traditional means.”
Getting your small business financed online is easier and safer than ever before. There are plenty of things that can stop your company in its tracks. Don’t let one of them be capital.