Various lines of credit are available to businesses and individuals, including quick funding options.
There are many inherent problems with easy financing, including high interest-related charges, hidden fees and commissions, pre-payment penalties, and possible harm to your credit score. However, these need to be weighed up against applications for bank loans, and the difficulty of being approved by Main Street financial institutions. Banks and credit unions require significant paperwork from clients vis-à-vis credit scores, business income, tax forms, and other bureaucratic red tape.
The application process for a bank loan is typically conducted at a brick and mortar institution.
Unfortunately, banks and their loan officers are rather limited in terms of what they can offer clients. They promote their own products and services, which means that they do not shop around for the lowest interest rates on loans. Since loan officers get paid commissions on the loans they write, it is in their best interest to get you to sign up, even if it’s not in your best interest. And the operative word is interest – the more the better, for banks – not for you.
How Do You Benefit from Quick Funding?
Quick funding with loans and lines of credit is beneficial, and potentially harmful at the same time. With banks, you can expect significant delays in processing applications. The qualifying criteria for bank loans are also more stringent than they are for short-term lenders, installment loan providers and the like.
Fortunately, it is possible to conduct quick and easy analysis to determine the pros and cons of quick funding versus traditional bank loans. Loan providers and loan aggregator services who work in the best interests of their clients will often provide tips on what you should be looking for when applying for quick loans.
One of the premier loan aggregator services, SmallBusinessLoansAustralia, recommends the following for clients:
Never indebt yourself if you don’t know whether you can repay the loan.
This is often overlooked when people apply for quick funding via lines of credit from non-bank lenders, bank lenders, or other credit providers. The only thing worse than debt is more debt. That’s certainly not something that you want to bank on when you are facing a mountain of financial uncertainty.
With quick funding options, you can rest assured that the interest rates are significantly higher on things like payday loans and installment loans than they are with traditional bank loans.
Avoid long-term repayment of high-interest debt.
This is a no-brainer since you certainly don’t want to be paying high interest on the principal for a long period of time. The longer your high-interest loan continues, the more interest you are paying and the less you have available to pay down the principal.
There’s also something known as the opportunity cost of high-interest debt. The money that you’re losing on interest repayments could be put to better use in a savings account, or repaying the principal.
Don’t borrow money to grow money.
This one needs further explanation. Many people see quick funding options as the equivalent of venture capital, or seed capital. High interest-rate loans are definitely not the way to go since you will be needing to generate significantly higher ROI just to cover the cost of the loan in the first place.
A business in its infancy stages needs access to low-cost capital. You want to check with banks and other FinTech providers that are fully licensed and regulated at lower interest rates for growth-related purposes. If possible, try to use personal savings, or investors to grow a business.
Avoid business suffocation with high-interest loans.
There is no doubt that businesses need capital to grease the proverbial wheels and run daily operations. However, businesses that are trying to get off the ground cannot be weighed down by high levels of debt. You should always try to lighten the load on your business by making it as easy as possible to operate. Low-interest loans and affordable repayments are preferred.
These tips will help you to make the right decision when choosing between short-term lenders, banks, and credit unions. It is always a good idea to minimize your financial burden through careful selection. Always read the fine print (terms and conditions), avoid high interest, long-term debt repayments, and use comparative analysis to pick the best loan provider.