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Be Selective
Greg McBride, Senior Financial Analyst for Bankrate.com, advises online shoppers to be careful about the sites they choose. Bankrate.com is a leading online aggregator of financial rate information, based in North Palm Beach, Florida.
McBride points out that most financial sites are more oriented to general consumer financing — such as mortgages and auto loans — and are not the best bet for small businesses, especially home-based start-ups. Others still — such as many of the banking giants — are more geared toward big businesses.
Home equity loans might be good choices in some cases — being cheaper than second mortgages. But for start-up businesses, says McBride, not so! “Lots of online sites offer home equity loans. But even while interest rates are good, you are still putting your home at risk. Also be mindful that the FED is in a rate-raising mode.”
McBride recommends a relatively new site called Prosper.com, which he says is well-suited for small businesses and home-based operations. “For someone in a home business,” he says, “Prosper.com might be helpful. The site promotes person-to-person loans up to $25,000. Interest rates depend on a borrower’s credit rating.”
Bid for your Money Prosper.com describes itself as the “first people-to-people lending marketplace,” through which both borrowers and lenders — like eBay’s buyers and sellers — can connect and bargain privately or bid for the best terms. Deals can be arranged for amounts from $1,000 to $25,000, depending on state regulations.
Borrowers list the amounts they wish to borrow and the interest they are willing to pay. Lenders, likewise, post their offerings. Then the bidding begins. Prosper.com manages loan administration and collections.
Participating borrowers are encouraged to join a group of other borrowers, the terms of which are explained at the site. The idea is that lenders are generally more willing to lend to borrowers who are members of larger, reputable groups. The payoff can mean lower interest rates and easier repayment terms.
SBA Advice David C. Dickson, Director of the Small Business Administration’s (SBA) Philadelphia District Office, advises business owners searching for online funding to observe some basic rules. “First, get a copy of your credit score and dispute any information that’s incorrect. If your credit score is not above 650, contact Consumer Credit Counseling Service at 800-989-2227. Don't contact a ‘credit repair’ company. Most of them charge high fees for things you can do yourself.”
Dickson also cautions loan shoppers to be sure the financial institutions are state or federally regulated. “That information should be on their web site,” he says. The SBA site provides a list of preferred local lenders for each of its regional offices.
Also important is preparation. “Know how much you need to borrow,” Dickson recommends, “and what you need it for. Have copies of your latest financial statements and some reasonable projections. Don't ask your banker: "How much can I get?"
A Few Extra Tips Have a business plan ready. It’s likely you’ll need it when shopping for business loans. Lots of Business Plan software is available. Give preference to local or regional lenders. This will make it easier to learn more about them, and to deal directly with them in person.
When approaching online sources:
· Beware of firms that give little or no specific contact information, such as names, addresses, and phone numbers.
· Beware of firms that give little or no specific contact information, such as names, addresses, and phone numbers.
· Know the difference between lenders and brokers. You don’t want to pay extra fees for a middleman.
· Be aware of ALL fees involved in the transaction. Beware of fraud. Learn about identity theft, scams and more at www.usa.gov/Citizen/Topics/Consumer_Safety HBM Christopher J. Bachler is a 20+-year veteran business writer and editor, based in Drexel Hill, PA. Previously published in the Junel 2007 issue of HOME BUSINESS® Magazine, an international publication for the growing and dynamic home-based market. Available on newsstands, in bookstores and chain stores, and via subscriptions ($15.00 for 1 year, six issues). Visit www.homebusinessmag.com.
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