Entrepreneurs Look at Online Alternatives to Banks
A loan is a loan right? Wrong! The approval process for loans differs from one company to the next, and there are significant differences among banks themselves. It’s not only the terms and conditions of the loan that need to be factored into the equation, it’s the APRs, the penalty for early repayment (if applicable), the paperwork that needs to be completed, the processing times, and the methods of loan application among others. Comfort and convenience is an integral component of the loan application process. Today, online businesses are turning to online lenders as a viable alternative to traditional banks and financial institutions.
The fact that banks have tightened their list of requirements needs to be factored into the equation. Traditional bank lenders across the world are making it increasingly more difficult for individuals and entrepreneurs to get approved for lines of credit. After the global financial crisis of 2008, lending requirements changed significantly. Banks shifted their focus from large-scale approval of clients with big lines of credit to smaller scale approval of clients with smaller lines of credit. This was done in an effort to protect the banks from payment defaults. Fortunately, the void that was created has been filled to a degree by non-bank lenders and online lenders such as FinTech corporations.
How Can Entrepreneurs Benefit from Non-Bank Lenders?
Non-bank lenders offer benefits that banks don’t. For example, qualifying criteria are significantly easier than with banks. Perfect credit scores aren’t required, although good credit always helps. A myriad of well-established companies provides financial services (lines of credit) to businesses today. One of them is Lending Club. It’s important to conduct in-depth analysis of all online lenders before you simply pick one off the proverbial shelf. Consider reading Lending Club reviews to gain a full understanding and appreciation of the services provided by this lender. Among the many benefits of using this lender are rapid time to funding (between 7 days – 28 days), no early prepayment penalties, easier approval criteria, and highly competitive fees and terms. Lending Club was established in 2006, as an efficient online loans provider. At the time, only personal loans were provided, but they soon expanded to include business loans and automobile financing.
Installment loans are the most common business loans today. They typically provide a business with a lump sum which is then paid back to the loan provider in monthly installments. To qualify for a loan from Lending Club, it important to provide documented evidence that your business is generating $50,000 + per annum and that it is at least 1 year old. Further proof is required of US residency or citizenship status, and at least a 20% holding in the business. Any judgments, liens, or bankruptcies filed against the business will also disqualify you for credit. Typically, a business loan in the amount of $5,000 – $300,000 will be subject to a repayment term length of 1-5 years. Interest rates vary from 5.9% through 25.9%, and there is an origination fee of between 0.99% and 6.99%. The typical annual percentage rate – inclusive of all fees – ranges from 9.77% through 35.71%. Any loans above $100,000 may be subject to personal guarantees, i.e. collateral.
How to Apply for Lending Club Loans?
Unlike traditional banks and financial institutions where a personal visit is required to a land-based branch, you can conduct an online application. A pre-approval does not guarantee approval; however it is an indication that customers are likely to get approved. Certain documents may be required to validate the online loan request such as evidence of personal income, proof of ID (passport/driver’s license), business address, business tax returns, and various IRS forms as well. Be advised that the loan origination fee is deducted from the principal before the loan is issued. This means that a $100,000 loan may be subject to $990 – $6,990 in loan origination fees. Is incumbent upon entrepreneurs to conduct the necessary homework before simply signing on the dotted line.