Online Lending Providing Answers for Small Businesses
You might be surprised to learn that small business owners are using online lenders for their credit needs. In fact, a survey conducted by the Federal Reserve Bank of New York found that one out of five credit-seeking small businesses applied to online lenders in 2013.
So, why is online lending becoming the funding source for so many small business owners? The most likely answer is that it is convenient. Online lending doesn’t save business owners money. In fact, many online lenders are more expensive than obtaining credit from other traditional sources. A study by economists at the Federal Reserve Board of Governors revealed that the average interest rate for an online loan is nearly double that on a loan from a traditional lending source.
You might be surprised to learn that business owners do not have greater odds of obtaining funding through Internet-based sources than from banks. Online lenders have routinely been known to extend credit to borrowers with lower credit scores, but they are also less likely than traditional banks to approve the loan applications they receive. The Federal Reserve Bank of New York conducted a survey in 2014 that found online lenders had loan-approval rates of 39%. This was significantly lower than the 59% loan-approval rate for smaller banks, and 45% for larger banks.
In sum, small businesses are seeking credit from online lenders because their loan products are better suited for their financing needs. Most small business owners no longer need lengthy term loans to finance significant purchases. Rather, they need smaller amounts of credit to allow them to manage cash-flow emergencies on a shorter term basis.
Online lenders are suited to meet this need. They often will agree to make a cash advance against the business’s accounts receivable which allows the small business owner to survive periods of unstable cash flow.
Of course, small business owners also find it convenient to submit their loan application by sitting at their computer. Traditional banks often make the application process difficult and time-consuming. The simplified process used by online lenders allows the business owner to obtain the funding quicker and without all of the hassle. In fact, many online lenders accept or reject requests for financing within hours of the application being submitted.
An experienced attorney at Nielsen Law Group is available to help with all your business matters. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.