Online Small Business Loans

Online Small Business Loans

Questions you should ask about online small business loans A few years ago not many Canadian small business owners had heard of online business loans, FinTech (financial technology) or alternative lenders. In 2010 there were only a handful of companies providing the service in Canada so most small businesses would automatically think bank or credit union if asked where to get a loan for their business. Now, in 2016, small business owners have more choices than ever before. Online business lenders are increasingly popping up and filling a major gap for Canadian small businesses often overlooked by the major banks. The only downside of more choice is that it takes time to do a little research on all the different loan options and all the different types of finance companies.

What kind of financing is right for my business? You may have heard of some of the choices.crowdfunding, peer-topeer, marketplace lending or maybe you haven t. If you re looking for financing for your business, you owe it to yourself to understand the basics. The brief descriptions that follow are by no means a complete list of options but may help you decide what type of small business loan is best for your unique business situation.

Crowdfunding Crowdfunding is the process of raising small amounts of money for a project or venture by a large number of people through an online platform. Projects range from new product ideas, events, non-profit fundraising, to some other worthy cause like raising money to support homeless kittens If you re looking for quick access to working capital, crowdfunding probably won t work for you. Peer-to-Peer Lending (P2P) Peer-to-peer lending is the process of matching borrowers and lenders through online platforms. The loan issued to you is comprised of many different investors ranging from individuals to institutional investors. P2P lending started as an individual investment platform but has grown to be dominated by institutional (Wall St) investors. This shift to Wall Street has, for whatever reason, led to a relatively new term Marketplace lending

Marketplace Lending Marketplace lenders are companies that rely on a variety of funding sources, including institutional investors, hedge funds, individual investors, venture capitalists, and other friendly Wall Street types. Marketplace lenders originate thousands of loans to small businesses then package them up and sell them off to investors. There are some huge marketplace lenders - mostly US companies that are aggressively (and annoyingly) marketing to Canadian small business owners. Probably the most well-known - even in Canada is On Deck. On Deck is a publicly traded Wall Street company that has done more than $4 billion in small business loans over almost 10 years in business. They have never made a profit and, in their 1st Quarter report, forecast a loss of almost $50 million for 2016. Direct Lender These are the lenders - other than banks or credit unions that make loans directly to small business owners without intermediaries such as brokers, re-sellers, aggregators, investment banks or Wall Street. Company Capital is a direct lender. If you care about where the money is coming from - and you should a direct lender is always your best bet for a business loan.

Should I borrow from a Marketplace Lender? To help you decide, here s a few headlines and links to news about some of the US based Marketplace lenders. On Deck Capital will the company even make it? Prosper Marketplace Is Making Deep Staff Cuts Shares of lenders On Deck and Lending Club are getting crushed Lending Club CEO fired over faulty loans So as a Canadian small business owner why should you care about the skepticism, criticism, losses, and other typical Wall Street goings-on related to these companies? Because as losses continue to pile up, customer service staff will slowly but surely begin to get laid off. So, if you ve borrowed from one of these companies not only will you never know who actually lent you the money, but if you ever need to contact someone well, good luck with that.

Is dealing with a Canadian Company important? Most Canadian small business owners prefer to deal with Canadian companies. Although many of the big US lenders have set up offices in Canada you should still ask for details about the company. Where is their head office, who owns the company, how long have they been in business, what is their BBB rating, etc. If the person on the other end of the phone doesn t know, you should probably check these guys off your list it s likely you re talking to a broker. When you re checking out their website if there is no contact us or about us page on their site you have to ask yourself what are they hiding?

Are you talking directly to the lender? Be sure to ask if you are talking directly with the lender and not a broker or a re-seller or a lead generator. If you are dealing with a broker or some other middleman you will always pay more. Always. They act on behalf of the funding company and add 10% or more to the cost of the loan. It s best to move on and contact the lender directly.

Get the total cost of financing in writing Always ask about the total cost of the loan and get it in writing before you go any further down the road. Many companies have origination fees that add up to 5% of the quoted cost. Others have insurance fees or admin fees. Some companies will take $500 off the top of your loan even before you receive the funds. Others charge renewal fees. They do this so they can quote the lowest interest rate but after it s all added up, it may not be the best rate you can find. Ask up front about all of these extra fees. Always ask for the total payback amount and get it in writing. Processing fee Administration fee

What about early payout penalties? If you want to pay out the loan early will you need to pay the full term amount of interest or is there a discount available? Some unsportsmanlike companies actually charge the full term amount, others make you pay a minimum of 3 months of interest, others will give you a 25% discount on the remaining interest, and others have no prepayment penalty at all (like us).

How flexible are they if stuff happens? It happens to every small business emergencies that need to be addressed today. What if stuff happens and you need to skip a couple payments? Can you reduce your payments for a month or two? Can you extend the term of the loan for a couple months? Can you top up the loan at any time? Are interest only payments available? Many of the big companies with automated systems may not be able to help you with these requests but we can.

Ask for a copy of the contract Always ask for a copy of the loan agreement before you commit to anything Ask for references Although written testimonials and reviews are always nice, ask for 2 or 3 references and make a few phone calls. One last word. In a new industry with so many options, finding the right small business lender can be a challenge. Although it may take a few hours of research, you owe it to yourself to find the best deal for your business. Shop around, get 2 or 3 quotes, ask for references and feel free to contact us with any questions.