NEW YORK (AP) - Getting a short-term small business loan is fast and easy, but they also tend to be much more expensive than traditional loans.
Applying for these loans is done online or through a broker, and money is typically deposited into a bank account within days. Payback is done in under a year, usually through daily or weekly automatic payments.
Before signing a loan agreement, here's some things small business owners should keep in mind:
SLOW DOWN
Before taking out a loan, "you need to slow down," says Ami Kassar, CEO of broker MultiFunding. "Take a breath and figure out the impact of your cash flow," he says. Daily payments, for example, can make it difficult to run a business.
Figuring out cash flow can be difficult for some small business owners, but fee advice is available, says Karen Mills, the former heard of the Small Business Administration. Reach out to the SBA or nonprofit organization Score. Both provide free counseling and workshops around the U.S. Check city and state small business centers too, they may also be able to help.
KNOW THE APR
Most short-term lenders do not provide annual percentage rates, or APRs, for their loan products. Knowing the APR can help you compare the cost of the loan to others. If you know how much you want to borrow, how long it will take to pay back and what the payments will be, try using online calculators at Fundastic.com or Efunda.com. Fundastic.com's has calculators that help users determine costs for certain lenders, including OnDeck and Kabbage.
CHECK THE FEES
Know what fees you may have to pay. Many lenders charge upfront fees for a loan, and some also charge fees for setting up an automatic payment or for not having enough cash in a bank account to cover a payment.
FIND OUT ABOUT PREPAYMENT PENALTIES
Check if you have to payback all the interest, even if you pay back the whole loan before it's due. It's common among short-term lenders to require all of the interest even if the loan is paid off early, but some might offer a discount.
ASK IF THEY REPORT TO CREDIT BUREAUS
Some small businesses that borrowed from short-term lenders were surprised to find that they do not report loan information to credit bureaus, even when a business had paid off the loan in full. This can prevent a small business from building up credit to qualify for a traditional loan from a bank. Don't be surprised; ask beforehand if the lender you are considering reports to credit bureaus.
Published: Wed, Oct 07, 2015
