Loan businesses can be highly lucrative investments, yet not all lenders provide equal terms. When selecting your lender, make sure the interest rate, loan amount and fees meet your needs exactly.
Business loans are loans obtained by businesses for operational needs and repaid with interest over an agreed-upon term, generally from traditional or alternative lenders such as online platforms or alternative lenders such as alternative financers and non-bank lenders.
Hard Money Lenders
Hard money lenders provide quick closings, flexible terms and various investment options to real estate investors. Relying on property value as collateral, they often accept borrowers with poor credit as borrowers – should the borrower fail to repay his or her debt, the lender can seize and sell off the property at auction.
Hard-money loans are often utilized for fix and flip investments, where properties are bought then quickly sold off again within months. They’re also ideal for commercial project developers looking to purchase land that requires extensive renovation before becoming suitable for sale.
These loans typically carry higher interest rates and shorter repayment periods compared to traditional business loans, usually calculated using the loan-to-value ratio (LTV), which measures how much of your loan amounts to what percentage of value there is in collateral; it typically falls between 65%-75%, although certain lenders may allow for higher percentages.
Payday loans are small, short-term cash advances that must be paid back with either your next paycheck or automatically debited from your bank account by the lender. Payday loans can typically be found at payday loan stores, check cashing outlets and financial service providers like title loan and rent-to-own businesses; alternatively many lenders now provide online payday loans as well.
Payday lending businesses operate using a business structure which requires consumers to write postdated checks or authorize electronic withdrawal of money from their bank accounts, often leading to debt for cash-strapped consumers who can’t repay on time and roll the debt over into their next paycheque. According to CRL, payday lenders may be predatory lenders especially in areas with limited access to mainstream loans or where residents rely heavily on payday loans as a source of funding basic needs.
Study results by Georgetown Credit Research Center show that many borrowers use payday loans to supplement their incomes, with many turning to illegal or risky sources for funding in order to get what they need. Consumer advocates advocate limiting fees and interest rates charged by payday lenders.
With online lending, business owners have more financing solutions at their fingertips than ever before. Lenders typically offer various financing products like lines of credit, business equity funding programs, peer-to-peer programs, invoice factoring and SBA loans to meet business owner financing needs.
Online lenders differ significantly from their brick and mortar counterparts in that they tend to be more accommodating and offer quicker processing of loan applications. While traditional brick-and-mortar lenders may require applicants to specify exactly how their funds will be spent when applying, as well as offer fixed terms of loan approval, online lenders tend to be more flexible. Additionally, these businesses tend to process applications quicker.
Online lenders offer superior customer service due to the lack of overhead costs associated with maintaining physical locations and staffing customer-facing departments. Yet some consumers remain wary about online lending due to concerns regarding security and legitimacy; so the best way to protect yourself before applying online is doing your research beforehand and performing a WHOIS check to quickly reveal who owns a site as well as when and for how long its been registered.
Traditional lenders include banks, credit unions, and other financial institutions that provide financing solutions for businesses. Loans offered by traditional lenders typically require the borrower to pledge collateral such as real estate or invoices in case of default; additionally, traditional lenders tend to charge higher interest rates than alternative ones.
Alternative lending providers like NewCo Capital Group provide flexible loan solutions tailored to various business financing scenarios. Their loans also offer greater access, transparency and ease of repayment than traditional bank loans.
These lenders may impose different eligibility criteria on applicants, such as having a high personal credit score or substantial revenue from the business, in addition to providing merchant services and business advisory. While these lenders can be great resources for building business credit, their application processes can take time consuming and they usually offer longer repayment terms than other forms of funding.