Did you know that about 45 percent of small businesses in the U.S. fail during their first five years? That’s according to a recent report from the Bureau of Labor Statistics. Companies close due to several factors:
- Failure to investigate the market
- Poor marketing
- Ineffective business plan
But the leading cause? Insufficient capital.
Without enough capital, companies have trouble financing their day-to-day operations. It’s no wonder then that small businesses turn to online lending marketplaces for quick business loans to avoid going bankrupt.
Common Mistakes You Should Avoid
Applying for online business loans is an excellent option to raise capital. That said, finding a loan that suits your specific financing needs can be tricky. In some instances, taking out a loan may cause your business more harm than good. Here are some common mistakes to avoid when applying for an online business loan:
Unclear Purpose for the Loan
Your creditor needs certainty that they will get their money back plus interest. They can only achieve that if the borrower–in this case, your business– uses the loan for a profitable project. Being transparent and specific about what the use of the loan will increase your chances of getting approved. Whether you need it to buy new equipment, more inventory, or rebuild your business after a disaster, you have to be transparent about your plans.
Neglecting Your FICO Score
Your credit score represents your creditworthiness. It can affect your qualification for certain types of business loans. Prominent online lenders like BlueVine, OnDeck, and Libertas Funding require you to comply with a minimum FICO score. Get a copy of your latest credit score to avoid applying for a loan you are not qualified for. Make sure to take advantage of your free credit report from any of the country’s top three credit bureaus—Equifax, Experian, and TransUnion.
Tampering with Cash Flow Data
Lenders are taking a considerable risk because they are investing their money on a trust basis. One thing they hate is dishonesty, and breaking their trust will be unfavorable for your business. When giving lenders an insight into your finances, don’t even consider deceiving them. Show them your actual cash inflow and outflow no matter how bad you think it appears so that they can gauge the health of your business. Remember that lenders can do background checks on your income and expenses.
Not Understanding Eligibility Requirements
Online lenders have a set of qualification requirements for each type of loan they are offering. But, they usually post this information in a concise and generic format. For instance, they may mention that the borrower must be industry fit but don’t specify the types of businesses that don’t qualify. Also, what you see on their website are often just basic requirements, so make sure to ask for more details.
Choosing the Wrong Type of Loan
There is such a thing as the wrong loan. The good news is lending marketplaces like LoanBuilder and Fundbox can help you. Start by choosing the type of loan so that they can find a perfect match. Treat loan applications like buying a house or a car. Most products look the same, but they are different in some aspects. Inspect each product and look for those minute differences. Then, pick one that will give you the most benefits.
Choosing the Right Business Loan and Lender
Unlike bank loans, online business loans are more flexible, more accessible, and are available in a greater variety. Here are just some of the loans available:
- SBA loans (backed by the U.S. Small Business Administration)
- Short-term loans (up to $250,000 payable for one year)
- Secured loans (these need collateral)
- Merchant cash advances (a loan against your business’s future earnings)
There are hundreds of online loan facilitators and marketplaces where you can find these business loans. Each of them has its own set of terms and caters to specific types of businesses. They differ in their qualification requirements, payment terms and conditions, and loan amounts. Large platforms like Funding Circle offer SBA loans up to $5 million without a prepayment rate. But, smaller ones like OnDeck provide term loans up to $500,000.
Online lenders and brokers are also well-known for their fast and easy application process. All you have to do is fill out an online form, which takes no more than 10 minutes, and wait for the lender’s approval. Depending on your qualifications and the loan amount, you can receive the loan within 24 hours.
How Lending Builder Can Help
Financial websites like LendingBuilder make it their mission to provide resources that help you. Here, you can learn about the loan application process so you can make the right choices. Even better, you can speak to an expert who can help you with the qualifications, term periods, and interest rates. Get a cash infusion for your company with a quick business loan today.