man and woman going over paperwork
The rise of online lenders makes it easier for small business owners to obtain loans, but it has also increased the risk of scams. — Getty Images/fizkes

The rise in online lending has made it easier for small business owners to receive funding. However, the landscape of small business lending has changed drastically in recent years. Here are three things you need to know about small business lending in 2019.

Be familiar with the five C’s of credit

The best way to get your small business loan approved is by knowing exactly what the lender is looking for, beginning with the five C’s of credit:

  • Character: Lenders will look at your credit history, your references, and your overall stability for signs of character. Make sure you check your credit score before applying. According to the Federal Trade Commission, one in four people identified errors on their credit report.
  • Capacity: Capacity refers to your cash flow. This can be difficult to measure but most lenders will look at your debt-to-income ratio and cash flow statements.
  • Capital: Capital refers to the amount of money you’ve invested in your business. Lenders also want to see that you’ve invested in the right areas of your business.
  • Conditions: What are the conditions surrounding your business? Lenders will look at factors like industry trends and the type of business you are starting.
  • Collateral: Collateral includes any inventory, real estate or other assets you can put up.

The huge growth in online lending has made it easier for small business owners to receive the funding they need.

Alternative lenders are changing the face of small business lending

Traditionally, business owners relied on banks for financing. But large banks aren’t always quick to lend money because of the level risk of not getting it back. Research shows that 77% of small businesses that apply for a loan from a large bank get rejected.

Fortunately, there are a number of alternative lenders that offer small business lending. These are online, non-bank lenders and the application process is easier and faster than going to a bank.

While banks can take weeks or months to get back to you with their decision, alternative lenders tend to be quicker. And once you’re approved, you can receive the funds as soon as the next business day.

Data also shows that online lenders offer a higher chance of approval compared to large banks, with 75% approval from online lenders compared to large banks at 56%.

There are a lot of scams to watch out for

The huge growth in online lending has made it easier for small business owners to receive the funding they need. Unfortunately, this has also given rise to more scams.

A survey from the BBB and the Fair Trade Commission found that 67% of small businesses said there is an increase in lending scams from three years ago. Scammers will try to steal your money, personal information and business information by posing as a legitimate lender.

To avoid lending scams, make sure you do your due diligence first. Research the lender thoroughly and ensure that it has solid contact information, including a real address and working phone number.

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