Page 32 - gs251102

Insights and Expertise

What businesses Red flags to heed when comparing loan offers

need to know before Fast approval can be tempting, but businesses should

slow down long enough to spot warning signs in
accepting fast capital lending offers. Hidden fees are the most common
issue. If repayment estimates look unusually low, dig
deeper to find out what's missing. Check whether the
quoted factor rate includes origination, processing or
broker fees, as these can significantly increase total
cost.

Review the repayment structure carefully, especially
for products tied to fluctuating sales, to ensure
the business can sustain required payments. And
compare offers side by side. Transparency, not speed,
is the best indicator of a trustworthy lending partner.
By Chad Otar
Lending Valley Repayment structures

one are the days when borrowers had to wait Repayment structures determine how much a borrower
weeks for a lending decision. Fast capital is must pay and when. Most loans have fixed repayments, so
here, and companies can often be approved the borrower always knows the amount due. Other loans,
G for funding in minutes. Fintech lenders are including cash advances from payment processors, do not
more numerous than ever. However, many companies have fixed repayments. Borrowers pay based on receipts.
focus more on obtaining fast lending than on comparing Tough months mean lower repayments, and strong months
the offers in front of them. mean higher ones. Still, even these products require a
minimum amount to be repaid by a set date. Repayment
You won't be surprised to learn that some lenders are not as structures matter because borrowers must be confident
transparent as they should be. The information borrowers they can keep up with them. Failure to meet a repayment
need is technically available, but often quite hidden. plan can impact long-term financial health.
This article provides an overview of factors to consider Evaluating offers from fintech funders
when determining which borrowing option is right for a
business. Only by comparing the true costs of loan offers It is essential for a business to choose the right borrowing
can a business owner make an informed decision. option. The wrong one can be costly, reduce future

Factor rates borrowing potential or even undermine the business.
Many lenders have moved away from interest rates in Several factors come into play. First, determine the true
favor of factor rates. Factor rates, displayed as decimals, cost of the loan. Cheaper is better, but sometimes a slightly
tell you exactly how much you'll repay, and they don't more expensive loan offers more manageable repayment
change over the life of the loan. For example, if a business terms. A low-cost loan may sound ideal, but if a business
borrows $10,000 at a factor rate of 1.2, it repays $12,000, cannot meet the repayment schedule, a higher-cost option
which includes fees of $2,000. Factor rates are often easier with better terms may be the wiser choice.
to compare than interest rates. With one calculation, you'll
know the total cost. They're most common in shorter-term Fast capital may be fast, but decisions should never be
borrowing and nontraditional (nonbank) lending. rushed. Businesses should take the time to compare
lenders to ensure they secure the borrowing option that
Fees best fits their needs.
Most lenders charge fees, and some bury this information, Note: I referred to the following in researching this article:
so borrowers must search for it. A few lenders are not as https://www.nerdwallet.com/article/small-business/factor-rate
transparent as they should be on this front. and https://fastercapital.com/topics/questions-to-ask-when-
choosing-a-lender.html
If a lender offers a far lower repayment amount than
competitors, hidden fees may be involved, especially
when working through a loan broker. Borrowers must Chad Otar is CEO of Lending Valley Inc. For information about the
factor these costs into the total repayment amount, since company, please visit www.lendingvalley.com. To reach Chad, send an
they are often not included in the quoted factor rate. email to chad@lendingvalley.com.

32