When your small business is struggling to stay afloat, experiencing financial difficulties at every step of the way, it can be easy to make a panicked move and to get yourself further into financial trouble by taking out a loan.
Sometimes, there truly is no alternative to that and you have to go that route. Knowing where to go is something that you can find everywhere but knowing what specifically not to do is important as well. Tying yourself up with the wrong lender can lead to a world of issues that will follow you and your business for years to come, if you are ever able to manage to escape it at all.
Avoid Peer-To-Peer Lending
Getting a large loan amount is difficult; when these peer-to-peer lending services offer you a loan, it is typically for a smaller amount and come with interest rates and fees that will take you far longer to pay off than any other sort of loan. That is what they are designed to do: keep you on the hook for longer so that you pay far more in fees.
Having these additional fees and interest rates can be a killer for a small business as revenues are usually tighter in the first year and keeping overhead to a minimum is important. Having huge fees and interest rates hanging over your head can lead to a lot of stress.
Stay away from peer-to-peer lending if at all possible because you can live to regret it in no time.
Avoid Banks and Credit Unions
Even though these are seen as more “secure’ financial institutions, they aren’t likely to be that much more help for a struggling small business. Banks and credit units generally are apprehensive to approve loans for small businesses due to the volatility that goes into owning a small business. If they don’t have absolute surety that they are getting their money back, they likely won’t fund it.
But even in the case that a bank does fund a loan, it is likely to come with a high amount of collateral due both in terms of business assets as well as personal assets. This is a huge price to pay for a loan to float you and can lead to disaster should your business not make it through the length of the loan and can’t pay it back.