With the advancement of technology, online lending has become very common over the years. There are several websites that maintain a pool of lenders. When you submit an application, the lenders have the opportunity to review your application and make offers to you. The third party is the website that receives your application. They will connect you to the lender. These third parties are increasingly popular because of the benefits to present to the borrower and the lender. They give the borrower several options since the borrower will need to choose between several lenders. However, there are some downsides as well. They may not properly advertise the lenders’ services since they are working with numerous lenders. However, these lenders allow you to work directly with lenders when you choose the lender you want to work with.
In the past, brokers were in charge of high profile investments. Billionaires used to give their cash to brokers to invest for them. In the same way, people who need loans business owners pay brokers to look for lenders for them. Sometimes, the amount of money brokers charge is too steep for small business lenders.
What is Direct Business Lending?
Direct business lending is when the lending company gets directly involved with the borrower without any involvement of third parties. Small business loans are designed to help small businesses to finance projects, finance the purchase of equipment, and maintain a regular cash flow for the operation of your business.
When you deal with lenders directly, the lender will help you to decide on a loan package that works for you. These lenders will discuss everything that is related to the loan with you. This includes the interest rate on the loan and the loan term.
How Direct Business Lending Works
When you find the lender you want to work with, you will need to complete their loan application form. The lender will review your application and then inform you about the status of your loan application. Lenders usually request for annual tax returns, proof of ownership of the business, your personal credit score, your business credit score, credit history, and bank account details. The lender will notify you if you need to include more documents. You will then be notified about the status of your loan. If you are approved for the loan, you will receive the funds in your account as soon as the next business day.
- Loan Terms
There are two main types of loan terms when it comes to business loans. There are short-term loans and long term loans. Short-term loans need to be paid in two to three years or less while long term loans can last up to 15 years. With long-term loans, you will be making low monthly payments. However, you will end up paying more by the end of the loan term. Short-term loans require high monthly payments, but the total cost of the loan will be less than the amount you will have paid if it was a long-term loan.
If you can afford to make higher monthly payments, it is recommended that you opt for short-term loans so that you do not stay in debt for too long.
- Loan Repayments
Although it is easy to access loans when you meet genuine direct lenders, you can lose scope of working with them if you do not repay your loan on time. Most often, you will be expected to make monthly payments on specified due dates. You need to plan your loan repayments so that you do not default on your loan. Some lenders recommend that borrowers should set up automatic payments which allow their bank to automatically make payments on their behalf. With this, you do not need to keep track of the due date. You only need to leave cash in your account at the end of every month.
Because lenders want borrowers to set up this automatic payment, some lenders offer promotions for making automatic payments. Avoid missing payments so that you can build a good credit history.
- Interest Rates
Interest rates vary but in most cases, they depend on your creditworthiness. They usually look at both personal credit score and business credit score. The personal score matters to lenders because they want to see how well you manage your finances. If you have a high credit score, you are likely to attract a business loan package with low interest rates. Generally, people and businesses with high credit scores attract low interest rates because lenders believe that it is less risky when you are lending to them. They are likely to make payments on time.
Direct business lenders will inform you about your interest rate and fees that come with the loan package. You should know the total cost of the loan even before the process is complete. If you are not clear about some fees, you should ask about them. Since you are dealing with the lender directly, they will be in the best position to explain everything to you. You should also verify that the fees advertised are the only fees you will pay. You will not want to be slapped with hidden fees when you are almost done with the process.
- Terms and Conditions
Direct business lenders may have general terms and conditions. However, these differ from one lender to another. This gives you more reason to read the terms and conditions. Reading the terms and conditions gives you more insight regarding the company and the loan package. It also helps you to stay on track. You will also avoid the issue of being surprised with conditions that you know nothing about after the loan process is completed.