Pros and Cons of Money Lending

As a small-business owner, one should be aware of the financing options available to help the company grow. The Small Business Administration has authorized small business money lending companies (SBLCs) to make loans and other debt instruments for small businesses. Financing is available for the purchase of assets such as owner-occupied buildings, working capital, and small projects, with the administration providing a partial guarantee that the loan will be paid back.Click here to become good at money lending in Chinatown. Let’s know more about the benefits and disadvantages of Money Lending:

Pros

  • Reduced Credit Requirements

Many new small business owners have difficulty obtaining capital from traditional banks to start or grow their businesses. Small business lending companies target these owners to provide financing despite their poor credit. There will be a premium charged for access to capital in the form of interest rates and other fees. However, being granted necessary funding is most important to owners in a financial bind.

  • Flexible Loan Terms

Loans that can be repaid over time help to reduce the monthly payment required for repayment. As they are not banks and are not regulated by the federal or state governments, SBLCs have the freedom to provide terms on their timetable. Furthermore, they typically offer smaller loans with no collateral required from the borrower.

Cons

  • Credit Risk

SBLCs typically charge higher interest rates than traditional banks due to the credit risk of their customer base. They typically charge the “Wall Street Journal” prime rate plus a premium based on the amount of funding obtained by the business owner. In 2011, this premium could range from 2.25 percent to more than 6 percent. Traditional funding’s highest average rates are slightly higher than 8%, whereas SBLC interest rates can reach nearly 12%.

  • Unregulated system

 SBLCs are not regulated by the federal or state governments. This gives them the freedom to conduct business in any way they see fit. Although it allows for some flexibility in their lending policies, you may find yourself in a bind if you have issues with the way they do business. As SBLCs, they must follow the rules established by the SBA or their lending capability may be jeopardized.

Sources

Many small businesses have begun to look for alternative financing to meet their short-term financing requirements. Peer-to-peer lending and crowdsourcing are becoming more popular ways for small businesses to fund projects that will help their businesses grow. These financing methods make use of websites that allow business owners to appeal to the general public for funds and gain the sourcing they require for anything from a new piece of equipment or additional inventory to a down payment on a new storefront.