Posted:
03 Oct 2015
As a result of the Great Recession the flow
of capital to entrepreneurs and small businesses went from a uniform stream to
a trickle. Traditional financial institutions largely closed the capital
pipeline as they considered small businesses to be too risky a venture.
Even today when banks are saying they
have money to lend, the reality is that they only want to make the safest small
business loans. With the Great Recession having tanked the personal equity of
entrepreneurs and small business owners, these once good-risk customers turned
into off-limits applicants.
With this unsatisfied demand for small
business capital, the online lending businesses is becoming a significant
player in the capital access market.
According to a
Wall Street Journal story by Peter Rudegeair and James
Sterngold, the online small business lending industry could see 68% increase
this year over last year reaching an eye-popping $7.9 billion in loans.
However, the reporters point out that
having more online small business lenders brings more aggressive competition
and potential problems for those using the service. While brick and mortar
institutions proceed with over abundant caution, these online lenders appear to
want to throw money at small businesses.
And there is the red flag.
Small business owners who take out
online loans are being targeted by other online lenders to obtain more loans
and cash advances. According to the WSJ story, the cash advance “annual
percentage rates on interest and fees can run to well over 100%.”
While this level of usury doesn’t rise
to the obscene predatory lending practices we have seen in the individual
market where interest rates are often over 300%, entrepreneurs and small
business owners might be the next frontier for profit-hungry online lenders.
Small businesses often need capital to
develop and grow. But unwise loans not only can sink a business, they can ruin
an entrepreneur and their family’s lives.
Caution is strongly advised
when obtaining an online business loan as well as getting help from a
reputable business or financial consultant.
UnConflicted
is the small business advocacy blog of Frank Knapp, Jr., President & CEO of
the South Carolina Small Business Chamber of Commerce. Visit our website to
join, subscribe to our newsletter, or follow the issues affecting small
businesses in SC: http://www.scsbc.org
No comments:
Post a Comment