Online lending has empowered consumers and business owners and changed the dynamic between borrowers and lenders. The traditional relationship between financial institutions and the borrowing community was one where borrowers appeared on bended knee in front of a loan officer at a local or regional bank. The lending criteria were defined and the process was lengthy. Marketplace lenders have forever altered the process and interactions, but there are some things that haven’t changed.
Your company needs financing, but research and due diligence puts your personal information at risk. The more options you consider, the more vulnerable you become. All lenders want to run your credit and access your personal information. Do not let them. Let Original Funding find you the best rate available, safely and quickly without putting you and your company at risk.
Just because a borrower has the ability to choose from hundreds, if not thousands, of online lending platforms, doesn’t mean that the process has changed; while it’s certainly faster and more user-friendly, the mechanics remain the same. Because Original Funding is a business advisory, we focus on business loans and cash advances, however, there are many similarities between consumer and business lending.
Behind those easy-to-use online applications is an underwriting team that is guided by a risk management criteria set in place by experience banking professionals. With precious little information, the underwriting teams are able to pull an extensive profile of a borrower including their credit report and criminal history. Depending upon this initial profile, your application will be segmented by the initial risk score employed by the lender and moved through the appropriate channel. Underwriters will then dig into your payment history, whether or not you have liens or outstanding loans, and your average bank balances. Some will go so far as to perform a site inspection to make sure you’re a real person with an actual place of business.
Before you submit your information on a site, it’s important to understand your rights and to ensure that you’re in a secure environment. To avoid online lending scams, we put together a helpful overview of items to look out for before filling out an application. For example, some sites look as though they are lending sites but they are actually brokerage sites that will take your application information and submit it to multiple lenders. Original Funding is a brokerage site, as an example, but we make it clear that we are not lenders, we’re advisors. Our job is to help business owners find funding for working capital, new projects, acquisitions and expansion opportunities. The difference in our approach is that we have already vetted the lending community and partnered with the most credible direct lenders in the industry. Moreover, because we take time to understand our borrowers’ business and their individual capital requirements, we only submit applications to funders that best fit the borrower’s profile. Some brokers will not only submit your application to dozens (sometimes more!) lenders, but they will sell your personal information to lead generation companies. So make sure you know who is handling your information before you fill out a single form online.
Small consumer loans are often available with only a few bits of personal information. Business loans are a different animal altogether so you should be prepared to gather certain documents if you’re serious about applying for an online business loan. At a minimum, make sure you have three months of your most recent business bank statements. Lenders will be looking to see if you maintain positive balances and have multiple deposits. The reason positive balances are important to lenders is that many payments are structured on a daily basis. Therefore, if your business account has a tendency to fall into negative territory, lenders might be nervous about daily ACH payments being returned by your bank. Multiple deposits are also important to lenders because they want to ensure that you aren’t too reliant on a small number of customers or clients. The rationale here is obvious; if a business has only four customers – no matter how big – losing just one customer could potentially be devastating.
Business owners should also be prepared to submit the most recent completed tax return. In certain cases, lenders might want to see additional bank statements and profit and loss statements to make sure the information you’re providing matches. For larger business loans where collateral comes into play, you should also be prepared to supply a copy of your mortgage statements for your home or business property. It’s not uncommon to see loans of a million dollars or more, but they typically require some sort of securitization.
Online loan applications have an addictive quality. Lenders and brokers make it enticing and easy to submit applications but you should be aware of the potential consequences. Submitting an application to a broker who is only interested in collecting fees or commissions could be dangerous. Your information could wind up anywhere in the world so make sure you review the site policy. If you don’t see one, or can’t find an address or phone number for the company, you’re probably better off staying away. More importantly, don’t apply for a loan if you aren’t certain you can pay it back. Sounds pretty simple, but the temptation to get in over one’s head because of the simplicity behind the application process can cloud one’s judgment. Unsecured loans are typically offered at much higher rates than traditional loans with collateral. So it’s important to be honest about your ability to manage payments comfortably. Online lenders have just as much teeth when it comes to collections as the big banks do.