Is It Safe to Get a Business Loan from an Online Lender?
With a business loan, you can obtain capital to manage working capital costs, buy equipment and inventory, expand your operation, and everything in between. If you do some research, you’ll find many online lenders that offer a variety of small business loans.
These lenders allow you to go through the entire application and funding process online, from the comfort of your own home office. While this is convenient, you may be wondering it it’s safe to get a business loan online. Keep reading to find out how you can secure a safe business loan that will help you grow your business, without risking your financial security.
Are Online Business Loans Safe?
There are countless online loans on the market. However, not all of them are created equal.
While some loans are completely safe, others pose a serious risk to small business owners and should be avoided at all costs. If you come across an online business loan that piques your interest, it’s important to do your due diligence to make sure they’re reputable. Otherwise, you may fall victim to a scam, causing you to overpay for your loan or risk your business’s security.
How to Detect Suspicious Online Business Loans
When you research online business loans, be sure to keep these red flags in mind. If you notice a lender exhibiting any of these red flags, you should look elsewhere for business financing.
1. Upfront Payments
If a business lender doesn’t have the funds they claim they have, they might ask you to pay an advance fee when you apply for a business loan or line of credit. This fee may range from a couple hundred to several thousands of dollars, depending on the lender.
If you pay the fee, there’s a good chance the lender will take your money and disappear. Keep in mind that reputable lenders will never ask you for any money upfront, regardless of the type of loan you’re applying for.
2. No Physical Address
Even though online business loan lenders don’t typically have brick-and-mortar locations, they should have a physical address. If you can’t find a physical address listed on their website, the lender might not be a legitimate financial provider.
In addition to a physical address, look for other details on their website, like their phone number and email address. You can also search for their business name on Google, social media platforms, and the Better Business Bureau.
3. Lender Contact
While legitimate lenders may advertise their loan, they’ll never send you a personal loan offer with specific terms. If you receive one via email or mail and you didn’t sign up for a mailing list or inquire about a loan offer, run the other direction.
4. Guaranteed Approval
When a lender extends a business loan offer, they’re taking on some risk. That’s why reputable lenders do not guarantee loan approvals without reviewing your credit score, business sales, and other factors.
Instead, they put your loan application through the underwriting process and carefully evaluate your credentials.
If a lender states they’ll approve you before you submit your application and understand your creditworthiness, there’s a good chance they’re a scammer. In addition, if they advertise payday loans that lack a thorough application process, it’s possible their loan options won’t be as good as they seem.
5. “Too Good to Be True” Loan Terms
If you don’t have a good credit score or haven’t been operational for a long time, it may be difficult to qualify for a loan with low interest and favorable terms.
If you receive an unbelievable loan offer, despite this, don’t get too excited. The lender may be a scammer or there might be a catch, such as hidden fees or a high interest rate. Although you should look for lenders with a fast, efficient funding process, if they promise business loans that are able to be applied for and secured in one business day, it may be too good to be true.
What to Look for in a Reputable Online Lenders
Fortunately, safe online lenders do exist. They’ll have a thorough but fair application process and secure lending practices, among other factors.
In most cases, reliable business lenders will have the following characteristics in common:
1. Strong Encryption
A legitimate online lender will invest in the highest level encryption to protect your personal information. If you visit a lender’s website and notice “https” instead of “http”, their website is safe to use.
Also, if you find a security certificate on their website from a well-known company such as Verisign, you should feel safe doing business with them.
2. Positive Reviews
Take the time to read online reviews about the lender that you’re considering. While a few negative reviews every once in a while is no big deal, many of them should be a deal breaker.
A legitimate lender will have countless positive reviews that signify borrowers have had a great experience with them. Positive reviews can give you the confidence you need to move forward with the application process.
3. Better Business Bureau (BBB) Rating
The BBB strives to instill trust in the marketplace, making it a reliable resource for business owners. It’s a good idea to visit a lender’s BBB profile to check out their rating and read any complaints that may be on their page.
A high BBB rating (ideally an A or A+) can speak volumes about an online lender’s credibility. It’s also a good sign if a lender is accredited by the BBB, responds to reviews, and has an up-to-date profile.
Grow Your Business By Applying with Safe Online Lenders
Online loans are fast, flexible, and convenient, making them a great option if you need funding for your business. As long as you find a lender that’s free of the red flags we discussed above, don’t hesitate to fill out an application. Just remember to read the fine print of your loan agreement and understand all of the terms before you sign on the dotted line.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.