Immediacy is the new currency in today’s business climate. Business owners no longer have the luxury of waiting for the perfect moment to launch their ideations. In today’s competitive market, business leaders have to act swiftly on ideas or they risk losing out to a like-minded competitor. Luckily for today’s hopeful business owners, financing no longer has to be a months-long process. Before the advent of online finance, the customary method for securing a business loan was through traditional bank lending applications, which, as many business owners can attest, is a process that requires strong credit, mountains of paperwork, and lots of time. Today, however, business owners are no longer relegated to suffering through the traditional application process.
There has been a recent surge in online lending platforms designed to meet the needs of today’s business owners. Unlike more traditional loan providers, these financing services can significantly cut the time to fund. Whether a business owner is looking to launch for the first time, needs to update operations, or expand human resources to meet a surge in customer demands, online platforms ensure that there is no waiting period.
The advent of online applications has overhauled the business-loan landscape. A decade ago, small-business owners were relegated to paper based mountainous bank-loan applications and weeks, possibly even months, of waiting for approval. The complexity and length of the business-loan process was archaic in comparison to the rate at which small businesses were launching and advancing. Entrepreneurs were forced to take a step back in time to secure the necessary funding. The headache of the overall loan-application process was further compounded by the fact that banks were cutting back on their loan offerings. In fact, just 1 in 4 businesses that apply for a loan from a big bank are approved. Investing so much time with very little hope of success simply makes no sense, as such, most business owners simply avoid pursuing the funds they require.
Something had to give. Luckily, as big-bank lending diminished, the industry saw a rise in alternative lending options. These streamlined solutions filled a void in the marketplace, serving the entrepreneurs and small businesses that traditional banks likely would have deemed unworthy. Today there is an array of solutions available for individuals and small businesses seeking financial support. From applications that specialize in loans for small online businesses to P2P lending applications, individuals of all backgrounds and with a variety of financial needs can find a service that supports their demands.
For decades, the loan-application process went something like this: individuals and businesses would fill out tedious application forms requesting loans to finance their ventures. The banks would then assess the application and study the applicant’s credit score to determine whether the entity was worthy of a loan (i.e., whether the individual could be trusted to make repayments). Fast-forward to 2018 and there is a new school of thought beginning to dominate the disruptive business-financing industry: individuals are more than their credit scores, and their potential to build promising companies and innovations should not be relegated to a single piece of data.
Today’s entrepreneurs and lenders want to look beyond FICO scores to determine loan worthiness, and new startup technologies are emerging to make this a reality. Firms, including Currency, are leveraging internet to assess an individual applicant’s readiness and potential. These game-changing companies operate on the principle that lowering the barriers to approval, both in terms of information sharing and credit risk assessment, are critical enhancements to business financing. This radical approach to streamlining the application process and grading individuals could have long-term implications on diversifying the business landscape. These online financiers are forging partnerships, further underlining their belief in expediting funding as the future of financing.
Before this industry shake-up, financing a business was incredibly difficult for anyone without a strong credit history or ample collateral. The landscape thus favored middle- and upper-class professionals and mature organizations with lots of equity. But innovation and dedication are not just qualities of those demographics; the opportunity to grow a venture should be available to every business, and disruptive lending services like Currency are making that a reality.
While the introduction of new financing options makes it easier for applicants to secure funding, this does not mean that entrepreneurs or small-business owners should begin tapping these resources with reckless abandon. If a loan is secured without a solid repayment plan, the consequences could be disastrous for a business’s long-term financial health. There are four prominent considerations every small-business owner should think about when applying for a loan:
Credit History – While strides have been made across some lending providers and tools to shift the focus of financing away from credit, for many options in the marketplace, credit remains a significant component.
Revenue – Some loans require proof of revenue, which means that your business must already be in existence in order to qualify. If a lender requires revenue and you are launching a business from scratch, you’ll need to find a start-up loan in the marketplace.
Loan Repayment – Will the loan be put to immediate use and help your business increase revenue? Even if you do obtain a long-term loan, will you be able to pay it off on time, or (preferably) before the terms of the repayment schedule?
APR – One of the often-discussed downsides of securing financing through small business lenders is the high annual percentage rates associated with the loan. Too often, business leaders overlook APR (Annual Percentage Rate) and focus solely on interest rates. But unlike interest rates, APRs incorporate every fee that accompanies the loan, including origination fees and ongoing maintenance charges. APRs can be difficult to understand, because on some loans more payment is required in the first two months than in the last months of the term. Often APRs also have huge ranges. Before agreeing to a loan from a lender, it’s imperative that small-business owners understand what each aspect of the loan, including APR, really means and how it will affect their bottom line in the long run.
One of the upsides to being a business owner at this point in time, in addition to having more access to loans, is that there are various types of loans available to individuals. Online lenders know that starting and running a small business is a dynamic process and not every entrepreneur requires the same kind of financing. Furthermore, many entrepreneurs will require different kinds of financing at separate stages of their businesses. Before applying for a loan, it’s a good idea to understand the basics of financing offers and how they might benefit a business.
Equipment Loans – No company can function without the help of equipment. From computers and printers to landscaping vehicles and construction machinery, properly functioning equipment is what fuels every business. Unfortunately for business owners, equipment often comes with a short shelf life. Many machines that are used in heavy rotation may require regular maintenance. Additionally, as technology advances at a rapid rate, equipment becomes obsolete fairly quickly. Businesses across verticals cannot expect to remain competitive if they are utilizing equipment that is not as fast or adept as their competitors’. Luckily, through online lenders, small-business owners can apply for equipment financing. Some lenders may also provide the option to apply for equipment leasing. Both financing to lease and taking out a loan on equipment with a down payment have advantages and disadvantages. Entrepreneurs must evaluate their business needs, as well as the typical life cycles of their required machines, to determine the best option.
Term Loans – The typical maximum rate of term loans from online lenders is $500,000. Whether the actual term is short or long depends on the predetermined repayment schedule established by the lender. Short-term loan recipients are generally given a repayment period of between 6 and 12 months, while long-term loan recipients are able to spread their repayments out over years. Business term loans are excellent options for companies needing to make a significant investment to put themselves on the map or revamp their service offerings.
Line of Credit – Business line of credit is good for managing cash flow, handling unexpected expenses, financing short-term business needs, or taking out business term loans (short or long) for one-time investments.
When small-business owners need cash, they need it fast. Small-business owners have the added challenge of managing multiple business functions. In addition to being their company’s leader, they often have to wear the hats of marketing, human resources and sales rep. They simply do not have enough time to spend hours filling out forms and liaising with bank representatives to obtain loan approval. With access to financing through online lending services, entrepreneurs don’t have to table key functions of their business, including developing product, operations strategy, marketing initiatives and overall company management.
Online Financing Ensures Expedited Technology Acquisitions – Imagine you are the owner of a new inn and are launching just in time for peak tourist season. However, just days into your launch, your computer system shuts down. As you were preparing to open your venture you tried to save on money by purchasing refurbished equipment and now have to shell out extra dollars to replace the existing machines. Now, without a steady flow of revenue. Rather than shutting your doors for weeks (or even months), securing an online equipment loan can ensure the arrival of new, up-to-date machinery immediately.
Increased Customer Service and Fulfillment – Sometimes you cannot predict the behavior of customers. New startup owners may give themselves a ramp-up timetable to perfect operations. But now, thanks to the immediacy of social media, one influencer post or successful PR hit could send a wave of customers to your business’s website or doorstep. Rather than halting customer purchases due to lack of financing for raw materials, employee resources or third-party vendors, securing a business line of credit or short-term loan through a mobile app lender can help your business fulfill customer needs and demands and make a strong first impression.
Build Your Business’s Credit – Too often, entrepreneurs are terrified of amassing debt. But every business needs credit, and the only way to obtain credit is through financing. As entrepreneurs scale their business from humble, one-store beginnings to nationwide chains, they often need to take out larger loans to cover the cost of real estate, construction and distributed resources. But no bank will approve a large-scale loan if a business hasn’t proven it has the ability to pay smaller loans on time. Obtaining loans early and often gives new ventures the opportunity to build up strong financial foundations upon which their future expansions can thrive. Seasoned entrepreneurs even apply for credit before their newly established business needs it, because they know that they’ll likely need a significant bank loan somewhere down the line if they want to build out their company’s potential.
Online lending options are expanding the world of business. They offer increased flexibility and immediacy, enabling business owners to pursue new ventures and projects swiftly without waiting for the rest of the market to catch up. They are also on the cutting edge of modernizing financial lending based on behaviors and fiscal activity, rather than just credit. Disruptors in the mobile lending space are determined to open up the world of financing for all innovators, regardless of background or credit history, and today’s small-business leaders have the opportunity to capitalize on these advancements.
If you have any questions about online or mobile lending, contact us now.