What to Do When Online Lenders Come Knocking

Category: Small Business Borrowing Published: Friday, 16 October 2015 Written by Admin

In recent years, alternative lending has become an important tool for small business owners to access credit.

Such lenders, including Inc. 5000 companies OnDeck and Lending Club, spotted an opportunity following the great recession, when banks tightened their credit standards and essentially stopped lending to small business owners. And theyve basically only increased their market share and marketing efforts ever since.

Now, according to this report on the Wall Street Journal, there are so many new alternative lenders, supported by the billions of dollars from venture capitalists, that theyre tripping over each other for customers. While that may seem like a good thing for business owners desperate for credit, its definitely a case of buyer beware.

Quite a few of the more established firms have been in the spotlight in recent months for questionable lending practices. And although they seem to be making efforts to address complaints, the same cant be said necessarily for the new batch of lenders, where interest rates on loans can be exorbitant, and repayment terms extreme.

About 20 percent of small business owners turned to online lenders to secure loans through the first half of 2014, according to the New York Federal Reserves most recent online lending report. Other reports suggest that online lenders could soon capture up to 30 percent of small business borrowing needs.

And online lenders are approving loans for small business owners at a much faster pace than traditional credit sources. In July, such lenders approved 61 percent of loan request, compared to 49 percent for small banks, and just 22 percent for large banks, according to online lender Biz2Credit.

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