There are a plethora of online business loans available today. Most of these are short-term loans, similar to cash advance loans. They can charge extremely high-interest rates, but typically require little in the way of background or credit checks. This can be especially attractive to small business owners without a long business history or who are in a cash crunch. Even still, entrepreneurs should be careful before jumping into a short-term online loan. Here are 3 concepts to consider before signing on the dotted line.
Review All Your Options
Even if you think you have no other options, look again. There may be certain investors interested in your business or you may qualify for certain Small Business Administration loans or even government grants. Another possible solution may be to ask your vendors to allow you to make late payments at a penalty. While the fee will be annoying, it may save you a lot of money in the long run over the interest charges of an online loan.
Have a Repayment Strategy
Short-term loans often require access to your checking account in order to automatically pull out their daily payments. This will continue for the life of the loan. It is essential to have a strategy to pay off this loan as soon as possible instead of just hoping that business will start booming soon. If you are not careful, short-term loan payments can start taking 25 or even 30 percent out of your business revenues. Detail a plan of how you will repay the money before agreeing to the loan.
Take Out an Appropriate Amount
While it might seem like taking out as little as possible would be the smartest choice with short-term online loans, in some situations, it may pay to pull out the largest chunk you can. If these online loans or cash advance loans are your only loan option, then taking out a large sum will help reduce your daily payments and it will give you time and working capital to put your business back on track.
When your business is in dire need of cash, take caution when applying for a short-term online loan. Being prepared can help you avoid a nasty cycle of debt with high-interest loans.