There are loads of people starting businesses today. In the decade following the Great Recession, there was a lot of hardship and setback that young people experienced. Lots of people graduating college did so in a decimated employment landscape. Many of them suffered through bad jobs and little or no wealth growth. But these difficulties inspired a growing number of these same young people to start businesses of their own, where employment options lacked.
This trend started a few years ago and is in full flame today. With young entrepreneurs opening businesses by the thousand, many of them entirely digital, it’s hard to find a way to stand out from the pack. This marketing aspect is usually the topic of this blog, but today we’re going to focus on financing. Just as hard as getting noticed in the crowded digital business landscape, is learning to notice the best lenders in the online lending space.
There is tremendous competition in this industry. And while there is regulation that pertains to lending, the internet makes it easy to set up lending shops that are less than legitimate. We’ve all heard stories of lenders setting up shop then making off with investor dollars in one exit scam or another. Among companies that are not scams, there are often lending terms that are far too expensive and restrictive for the good of the borrower. It takes some experience to spot the best lenders.
Identifying the best personal loans for people with bad credit is just as difficult, if not more so. It is more than a stereotype that people who start online businesses can be in tough financial shape. This may be because opening up a business is very risky. People do it because they need the money, not because they are already financially independent. Some people use all the money they have, and exhaust all of their credit options to finance a new business. Sometimes this isn’t enough.
For people trying to open up a digital business with limited personal funds and poor credit, the landscape can look either bleak or confusing. You can be sure that for every reputable company that caters to the lending needs of people with poor credit, there are another five that only exist to ensnare borrowers in loans with crazy interest rates and other unreasonable terms. If you are a new entrepreneur with limited experience and even more limited funds, you’ve got to take the time to understand the lending landscape before signing up for a loan that will take you many years to pay off. Here are some of the things to look for.
Interest/APR: If you type “Bad Credit Personal Loan” into Google, you are going to be overwhelmed by a thousand different lenders who want to saddle you with high interest for a long time to come. Interest is the single most important factor in a loan. There is a common sleight of hand that poor lenders will use by trying to distract a borrower with how much they are going to pay monthly. You’ll see this a lot with used car dealers that handle financing for bad credit customers. They’ll highlight how affordable the monthly payment is, taking attention away from the fact that the interest is so high that the borrower will have paid back more than twice the value of the loan by the time the term has completed.
When trying to borrow money, the interest rate and associated fees (the two factors that, together, form the APR, or Annual Percentage Rate) is the most important factor to consider. If you haven’t taken out a loan before, it can be helpful to think about the APR in a couple of different ways. From your perspective, it’s the rate at which your debt will grow. From the perspective of the lender, it’s the rate at which their profit will grow. When an individual invests, it’s very difficult to break 9% annual returns in the traditional stock market. When you compare this rate to the APR seen on many credit cards (up to 36%), you’ll see how much higher this APR is than the rate of growth in the US economy.
Consumer debt is a great way for investors to make money, especially when the rates are as high as possible. Of course, lending companies can’t always attract people who ignore or don’t care about their high rates, so they’ll find ways to obscure them. Beware of variable rates (rates that grow over time, after a period of affordability at the beginning of the loan). Also beware loans that will penalize you if you pay off the debt early. Paying off a loan early is the best possible way to save on interest and fees. Only the shadiest companies will charge you extra money for doing so.
Another way to find the best companies is to focus on their reputation. This may seem obvious, but it’s not always easy to figure out what a company’s actual reputation is. There are tons of online lenders that doctor internet comments and web reviews in order to paint a different picture of themselves than the one that would represent reality. It’s a good habit for anyone who uses the internet to start to tell the difference between authentic comments and fake or paid-for comments. You can start to tell by a certain kind of tone the writer uses. Often the posts will be error-free, and almost always will just sound totally unlike how actual people actually talk. If you sniff out too much of this, you might want to find a company that doesn’t mind real feedback from their users.
In the end, borrowing money online is all about affordability and ease of use. You should be able to tell these from user comments and the terms outlined by the company. You should also trust your gut. If you don’t feel that customer service is adequate, or you feel in any way unsure about the process you’re in, don’t hesitate to back out before a loan is completed. Just because you have a business to build doesn’t mean you should saddle yourself with a loan that isn’t actually good for your needs.