What you need to know about online finance providers
Wednesday, June 28, 2017/
The rise of alternative lending in Australia has been a significant development for SMEs, many of which are frustrated with an inability to lock down financing from traditional lenders.
In a recent SmartCompany survey, for instance, 25% of respondents said they wanted to obtain a business loan within two years – and 20% of those respondents said they would consider online financing.
However, 30% said they don’t necessarily trust online lenders. So how can small businesses know which online providers are offering a legitimate service, while avoiding those providers that may not offer a quality experience?
It’s clear why online providers are attractive, and how they differ from the major banks. Many online providers can provide faster applications, more flexible terms, and offer lower fees. Additionally, many providers offer similar types of security and accessibility compared to the larger banks.
Neil Slonim is the founder of theBankDoctor.org, a not-for-profit online source of free, independent banking advice for SMEs. He says the quick rise of online lenders has made it difficult for SMEs to understand the differences between them all.
“If you look at their website, they all look very much the same, and they all say the same things,” he says. “Whereas a couple of years ago I would have said the big issue facing online lenders is awareness…I think we’ve moved beyond awareness and the big issue confronting the sector is understanding.”
Slonim says SMEs should ask themselves three questions when it comes to determining the value of an online lender:
* Does the product align to my needs as a business?
* Am I aware of how much I’m paying in fees?
* Can I get a better deal elsewhere?
Slonim says the fees question is particularly important, as many online lenders may require daily repayments, and charge significant late fees and penalty interest rates if those aren’t met.
“Late fees and penalty interest rates can become significant,” he says.
According to SmartCompany’s annual reader survey 24% of respondents looking for online finance are doing so for cashflow – which makes it all the more important for SMEs looking for online lenders to work quickly. Particularly before the end of financial year when many businesses want to plan investment decisions, freeing up capital can be important.
“Many banks are taking long periods of time to make decisions, and I’ve seen instances where it can take up to three months for a bank to make a decision,” Slonim says.
Online lenders are distinguishing themselves from the big banks by offering fast applications, with finance decisions often made within 24 hours. Some are going further by not requiring security or guarantees before processing a business loan.
While these offers are very attractive, it is still essential that SMEs do their homework and ensure they only using trusted, credible online finance providers.