The company I work for, BlueStar HonorCare, recently borrowed money via the StreetShares.com platform and the experience was excellent with funds arriving in our bank account less than a week after filling out a few online forms. We sell medical alert systems to veterans and family members of veterans, which requires a lot of capital, so we’re always on the lookout for new sources of capital that doesn’t cause too much pain to raise.
Madhur Grover, Chief Credit Officer at StreetShares.com, offers some excellent advice on business loans in a recent article published on their Website: “Think Before you Ink” Your Loan
In his article Madhur lists the most important things to review before signing a business loan agreement. Here are some of the highlights:
- The Total Cost of the Loan (interest rates and all the fees): Sometimes the true cost of a loan is not clear. To keep you from spending more than you anticipate, ask your lender about all the costs involved including all the interest, origination fees, servicing fees, guarantee fees, etc. Make sure your lender shows you the full APR (Annualized percentage Rate) on your loan irrespective of whether it’s for short-term financing or a merchant cash advance or any other small business financing product.
- Early Prepayment Penalty: Yes, you read that right. Most online lenders have a penalty to pay off your loan early. Many online lenders will actually charge the whole interest due over the lifetime of the loan irrespective of when you pay it off. This is called interest acceleration, and it’s the lenders way of making sure they make the interest they expected on the loan…even if you pay it off early. This is a hidden trap and lot of small business owners fall for this.
- The Track Record and Practices of the Lender (payment frequency, early payment penalty): How do they want you to pay back the loan? Is it a fixed daily, weekly, or monthly payment, or is the payment a fixed percentage of your sales or credit card receivable? Always look at the customer feedback on third-party websites NOT just on the lender websites.
- The Requirements of the Lender (personal guarantee, security): In order to secure funding, lenders have certain requirements to ensure you pay back the loan in full. Do they require a personal guarantee? Having a guarantor on a loan is a standard industry practice and shouldn’t affect you personally if you are able to pay the loan back on time. Is the loan secured? If your loan is secured through a blanket lien or specific lien on your assets (such as your car, house, or equipment), it can lower your borrowing costs and help you get a larger loan amount but in case of default the lender may come after your assets.
- Double dipping: When borrowers take out new loans before fully repaying an existing loan (i.e. refinancing existing debt), they are often double-charged the origination fees for the outstanding portion of their loans and hence end up paying double fees on the first loan.
For more information read the full article over on StreetShares.com: “Think Before you Ink” Your Loan
About the author & StreetShares.com
Madhur Grover is Chief Credit Officer at StreetShares. Madhur previously worked at Capital One for 10 years and is a CFA charterholder.
StreetShares is America’s small business funding community. Business owners get fast, affordable small business loans and meet investors and backers who support their business. Investors earn solid returns and back businesses they believe in. Membership is free and open to qualified small businesses and investors. StreetShares is veteran-run and located outside of Washington, D.C. Learn more at StreetShares.com.
VLM Coakley 6/14/2016