What You Need to Know About Direct Business Lending
Every business has varying needs when it comes to funding. Some business owners may not need the money immediately. But there are also businesses that require instant funding. It gets more difficult, especially if the business owner does not have a stellar credit record which is one of the things that lenders usually require, unless you opt for direct business lending.
What is Direct Business Lending?
As the name implies, direct business lending is a type of financing option where you apply for a loan and get funding directly from the lender. There is no need for a middleman. Small business owners prefer to get this type of loan for its easy process and requirements. Nowadays, most companies offering direct business lending make use of the Internet as a platform. It is easier to conduct transactions.
Why Business Owners Turn to Direct Business Lending?
Business owners have limited capital. In order to continue business operations and to boost growth. Unfortunately, a lot of businesses face various hurdles when it comes to financing and access to credit. Even though there are loans that are aimed to provide funds for small business owners, the reality it can still be a bit difficult to secure a loan.
For instance, if you want to apply for a loan with traditional banks. They may require several documents and other requirements which can be big hurdles for business to get the funding that they need.
How to Apply for a Business Loan
When it comes to direct business lending, the process actually may vary along with the set of requirements needed. Here are some tips to have a hassle-free business application:
Easy Steps to Get Funded
Unlike traditional lending and borrowing, it’s much easier to get funding with direct business lending. There are a lot of companies who operate online which means that you don’t have to personally go their office just to submit your application. The process is as fast and can be as easy as the following:
- Step 1: You fill out an application form online. Lenders would usually ask for various documents that you need to upload. They evaluate your previous bank statements and assess the performance of your business. Your credit score is not the main emphasis.
- Step 2: Once your application is approved, you will receive the agreement. Sign the funding agreement only if you full understand what is being stated. If you are not so sure, it is strongly recommended that you ask for clarification.
- Step 3: When you have finally signed the agreement, you can instantly get your funds. You never have to worry about restrictions as to how you can use the funds.
What Are Its Advantages?
When comparing alternatives, one has to look at the advantages and disadvantages. Considering that there are so many businesses that use direct business lending, it goes to show that this financing option has its respective benefits and advantages which include the following:
- The application process is quick. There is no need for you to deal with paperworks or to fall in line.
- There are no charges when you apply and you can actually qualify up to $500,000 depending on the lending company.
- Once the company approves your loan application, you can get funding in a few hours.
- The renewal process is also fast and easy for as long as you pay on time.
- Lending companies offer automated payments.
- Collateral is not required. They will assess your business performance and not your credit score. So, even if you have poor personal credit standing, you can still apply for this loan.
What Are the Disadvantages?
Using this type of financing option has its downsides too, which include the following:
- Since the application process is relatively easy then you can expect that the interest rates are quite higher.
- Another thing is that they are not regulated by the government. It gives them the leeway to do things their way.
Other Business Loan Options
There is a wide range of new business loans options depending on your business needs and your credit score. If you have good credit score around 700+ or even higher then you can simply choose which business loan option to get. You won’t have a hard time securing a loan even from banks. However, it is also important to note that although you credit score is one of the factors that lending companies and banks consider before they grant your application, it is not a guarantee.
Want to have alternatives? These are some of the most popular business loan options that you may want to consider:
- Term Loan
Term loan is a common financing option among business owners. With this type of loan, you pay your debts for a certain time usually around 5 years or more depending on the terms agreed upon. Getting a long-term loan enables businesses to have enough working capital to buy inventory, assets or equipment to help them grow their business. This type of loan usually has fixed interest rates and you get to choose either you want to have a monthly or quarterly payments.
What are the advantages of getting this loan? This financing option is suitable for newly established businesses or those that want to invest in equipment or assets.
- SBA Loan
Another good option is the SBA Loan. The U.S. Small Business Administration has SBA loan programs that allow small businesses to get the funding they need. The SBA guarantees loan for its participants. In the event of a default, the taxpayers’ funds are utilized which lessens the risks shouldered by the lender. However, it is important to note that this does not mean that the borrower no longer has responsibility or risk in case of a default. The business owner still has full responsibility for the debt.
Business Loan Options with Poor Credit
Even if you have poor credit, you can still have financing options. Although of course, the choices are limited. The good news is that you will still have options. Here are some of the loan options you can get even with poor credit standing:
- Short-term and Medium-Term Loan
Short-term and medium term loans are similar with long-term loans. They only differ in the time frame and interest rate. In choosing these loans, you can expect higher interest rates. But at least the time frame that you need to pay back the loan is not that long. If you have good cash flow, you will be able to pay your loan faster.
- Invoice Factoring
For many years, this has been a widely used financing option among business owners. With invoice factoring, you basically sell what you call the financial rights of your invoices to a factor. You work with a factoring company who will buy these invoices and give you quick cash advance in exchange of the value of the invoices. One of the reasons as to why this is a popular option is the fact that it is not technically considered as a loan. You don’t incur any debt. How does it work? The invoices that you send to your clients may take time to pay off. What a factoring company does is it charges certain fees to buy the invoices and give you around 80% of the total amount in the invoice. The rest of the payment is made after your client has finally paid the invoice. The factoring fees that you have to pay depends on the factoring company.
Searching for a Lender
- Research on the company where you want to apply for a loan. Make sure that it is legitimate to operate. You wouldn’t want to deal with a shad operator that can be problematic later on.
- Do not hesitate to ask questions especially when it comes to the process, fees, and payment terms and conditions. Knowing all of these details enable you to weigh your choices and find most viable financing option for your business.
- Read reviews and feedback from customers online. What do they say about the company? Chances are if the company is continuously getting negative reviews then it means that customers have bad experiences working with them.
- Once you have chosen where to get the funds you need, make sure that you read and completely understand everything that is in the contract. There should be no grey areas to avoid any problem later on.
Importance of Building Good Credit
A good credit, it speaks volumes as to how you manage your finances personally and this reflects how you manage your business finances as well. When a business owner has good credit, he won’t have a hard time looking for a financing option where he can fund his business. There will always be lending companies who are willing to provide the necessary credit. It may take time to build good credit but it is definitely not impossible.
If you have low credit score, it is now the time to start building your credit. Make sure that you pay any outstanding debt. When you make payments, they should be on time. You should also find ways how you can increase your business income to boost your cash flow. In that way, you don’t have to rely on loans all the time.
Any type of financing option, whether it is a loan or factoring, has is respective pros and cons. To ensure business growth, it is to your discretion to compare alternatives and determine the best financing option that best meets what your business needs.