What You Need to Know About Online Lending | Lendr

Online lending is trending to become a critical component for the survival of small businesses. At some point or another, a business requires start up funds, quick cash flow relief, or finances for business equipment and growth. Access to capital is the fuel that drives an industry that is so pivotal in the economy. According to a recent study, “small businesses (defined as businesses with fewer than 500 employees) account for 99.7% of all business in the United States.” Clearly, small businesses are here to stay, and with help from small business funding, alternative lenders can give them a chance of surviving the cash-strapped times they face.

Access to capital is the fuel that drives an industry that is so pivotal in the economy.

Since the crisis hit in 2008, small business lending from banks has changed dramatically, and the recovery period is showing minimal improvement on the bank’s side. While the demand for small business loans is increasing, banks are still recovering and showing reluctance in issuing these types of loans. Additionally, traditional banks face substantial regulatory hurdles in determining and issuing small business loans. Read this blog for more information about the current banking trends in small business lending.

Because banks have become more conservative in this area of lending, small businesses have experienced minimal access to funding. In fact, according to a recent Wall Street Journal report, big banks have reduced the volume of loans to small businesses by more than 38% since 2006. As a result, the trend in small business financing is toward online lending from alternative providers who are making loans of $1 million or less, giving small business an opportunity to thrive.

Characteristics of Online Lending

Below are two main characteristics of online lending and why it is a frequent and useful choice for small business owners.

Reports suggest “that some borrowers are willing to pay a higher price in exchange for an easy application process, a quick decision, and rapid availability of funds.”

  1. Automated and Innovative Technology
    Growth within the online alternative lending industry has been supported by innovative uses of technology which allow lending platforms to streamline and automate loan applications, expedite underwriting, and provide loan applicants with quick decisions and access to funds. This is supported by the industry since reports suggest “that some borrowers are willing to pay a higher price in exchange for an easy application process, a quick decision, and rapid availability of funds.”
  2. Personal and Customized Approach
    Lendr takes a personal and customized approach to financing a small business and creating a working relationship that lasts the lifetime of the business. Traditional lenders typically look at the applicant’s credit history, number of employees, and industry trends. They rarely take other circumstances, like sales reports, banking transactions, and overall business performance of the applicant, into account. We take a realistic approach to lending, as we understand that there is a variety of data that must be considered when responding to a request for funding.

Tips for Small Business Owners

As a current or prospective small business owner, it is more than likely that you will require funding at some point. Furthermore, there are several ways in which you can use a small business loan. When searching for the right lender, keep these three points in mind:

  1. Evaluate your options.
    There are several options in the small business loan world. If a traditional bank loan seems to be the right route for you, absolutely pursue that. However, if you are looking for some quick cash, explore the alternative opportunities that are available. Just make sure you carefully evaluate your lender, before settling on one that is willing to approve your request, as they will be evaluating you as well.
  2. Understand rates and terms.
    Whether you are pursuing a small business loan through a traditional bank or taking the alternative lending approach, you need to make sure that you understand the rate, fees, and terms of the loan. The process of receiving a loan from an alternative lender is usually pretty quick, and therefore, it’s easy to miss an important piece of the agreement. So, read your contract thoroughly!
  3. Make a plan for repayment.
    While fast cash feels great once you have it, it’s also something that needs to be paid back with interest. Make sure you are taking a conservative approach to your repayment plan in order avoid future failures and increase your chances of paying back your loan easily. By being proactive (and staying realistic) you will avoid any potential outcome of being buried in debt.

Financing is always a challenge for small businesses. Prospective and existing businesses need to understand the options they have with online lending and how it can improve their business. According to an article from CNBC, “the size of the nonbank financial system is estimated to be at $3.2 trillion and will continue to grow, especially for smaller businesses.” Small business owners are on the same page, and now that alternative lenders are becoming more savvy, reliable and innovative, small businesses are able to start, grow and sustain their businesses through this quick and easy financing method. As you navigate through your lending options, stay optimistic, as there are options available. You just have to know where to find them.

More articles and case studies...

The Small Business Owner’s Newsletter

Join the list for stories, articles and resources to help you grow your business.

It only takes one click to subscribe.