The Online Business Lending Industry

When TABASFUNDING was founded in 2002, there were not a lot of alternatives for small business lending. Businesses could go to the bank, but banks often didn’t want to lend to small businesses. The paperwork is mostly the same, whether for small or large business borrowing.  Often, small businesses have sketchy financial information available.  It is hard to put bad information into shape, if you are a banker.

Businesses could also borrow on credit cards. I read a great bankers story about a guitar rental business owner, unconventional looking, who got turned down every time he applied in person for a business loan, but was approved for $150,000 of credit card loans at the same bank without ever going into a bank branch.

Within the last 5 years, there has been a proliferation of online business lenders.  The benefits of this type of loan are less paperwork and a quick funding time.  Keep in mind that the number one reason that businesses fail is not quality control or theft; it is simply that they run out of money.  For a desperate business owner, fast money has a lot of appeal.

The dark side to these loans is their breathtaking high interest rates. Interest payments are front loaded, so that even if the loan is paid off early, the business has paid the interest for the entire loan term.  Another negative is the very short repayment terms, with 6 months being common. Online business lenders obtain authorization to charge the business account DAILY for payments. While a $200 payment may not seem like much, but we’re talking $200 DAILY. That type of aggressive payment is a killer for most businesses.

What seems to happen to these high interest/short repayment business loans is that they either go into default, or given time, they are refinanced with banks or other lenders that have more reasonable repayment terms.  TABASFUNDING has done some refinancing of the quick repayment loans. We would be glad to talk with you about your situation, so give us a call, 610-896-2400 or email us at Lee@Tabasfunding.com.

 

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