As a small business owner, your dream is to have your business succeed. But without working capital, it can be incredibly difficult to get there. Small businesses move quickly, and the process becomes stressful when you need money now. Online lenders (also called MCA, ACH and cashflow lenders) have been popping up all over the internet, promising 10k in 10 minutes. It’s easy to fill out a form, submit some information online, and get funded that same day, but it comes at a cost. Here are 10 reasons why you should avoid online lenders, despite how simple it may seem:
1. It’s expensive.
Regardless of how it’s presented, online loans are expensive – plain and simple. Paying 1.3 times the loan amount over the course of 6 months still equates to 60% per annum.
2. Online lenders are money-hungry.
The online lender’s interests aren’t aligned with yours – they’re looking to recoup principal as quickly as possible. They want their payment, with interest, without paying much attention to the fluctuations in your business.
3. Money is taken out automatically.
Daily or weekly ACH debits will kill your cash flow! Whether money is coming into your bank account or not, you can be sure that your daily payment will be debited that morning.
4. It creates a vicious cycle.
You’re putting a band-aid on the issue. You’re likely taking this loan to fulfill an order, buy a piece of equipment or to make payroll. At best, it’s a temporary fix that will leave you in the same position in a few months, and in serious debt.
5. There’s no personal connection.
Algorithms and forms are okay, but talking to a human can add a ton of value to your business. You would be surprised at how much a lender could tailor a solution to fit your needs. Filling out an online app just doesn’t have the same effect.
6. It hurts your credit score.
Most bank lenders will look at online lenders and daily debits as a huge red flag for a business. You aren’t making it easier on yourself to get to traditional bank financing.
7. The product is one size fits all.
The pizzeria down the street is being underwritten the same way as your business, and nobody is taking into account your business’s specific needs or arrangement.
8. There’s no mentor or advisor.
There is nobody to speak to if you hit a bump in the road or need some financial advice. It’s imperative to have someone to bounce around ideas with, or to discuss issues.
9. They may cause a breach of contract.
If you’ve secured other financing at some point – you’re likely in breach of your contract by taking that online loan.
10. They will never leave you alone.
Once you take that loan, every other online lender will be at your doorstep and flooding your email to offer you the same deal or worse. They call that stacking loans – and it’s a death knell for a business.
When it comes to getting capital to fund your business, there are a multitude of options available, and it can be confusing. We recommend avoiding the quick-fix online lenders and choosing a trustworthy lender who will dedicate time to personalizing your loan.
Call us at 212.960.3750 or get started below.