Lending resources abound on the Web, but finding the right match with one takes perseverance. Cliff Kurtzman, is president and CEO of the seven-year-old Tenagra Corporation, an Internet marketing and Web development company with 15 employees in Houston and New Orleans. He found $100,000 on line, but it took a few tries before he landed the right lender.
"Many of our clients are Internet companies," Kurtzman says. "When the stock market took a dip in April, a lot had trouble paying us for a month or two. We needed some additional capital to get through everyday expenses until things got back to normal, so I decided to apply for a loan."
Rather than call mortgage brokers, Kurtzman did some searching on line. He typed "www.smallbusinessloans.com" into his browser and immediately found a lending institution. After filling out the lender's forms, he received an e-mail containing the details of the loan. "It was essentially the fine print of the loan," he says. "And nowhere in that e-mail did it say what the interest was. I had to use a calculator and figure the interest out myself."
According to Kurtzman, the fine print also stated that the lender would collateralize every aspect of his business for four years without the possibility of an early payoff. "It was as if they wanted to make the loan hoping I'd default so they could have my business," he says. Kurtzman decided not to take that loan.
Most online financial institutions are more upfront about their lending practices, but there are other issues to consider. Before you sign on the dotted line, you'll need to know what lenders are out there and how to find the right one.
There are several types of lenders on line, including traditional banks and lending agencies, U. S. Small Business Administration (SBA) lenders, third-party sites, and others such as angel investors or venture capitalists. Many SBA lenders offer online forms, and you can use the Web to compare lenders and look around beyond your local bank.
Third party sites, like LendingTree. com or BusinessLenders.com, match up business owners with multiple lenders. Venture capital or angel investors provide alternatives that may better suit some companies. They may not have online forms, but their sites should say what types of businesses they're willing to fund.
One such group is WomenAngels.net, a Washington, D.C.-based investment club of women who do angel investing. "We've had several businesses approach us through our Web site," says Kyp Sirinakis, managing director of the club. "Although none of those applications have resulted in our investing in their companies, it may happen in the future."
Laying The Groundwork
Right off the bat, you can avoid confusion by knowing what you're looking for and what's being offered. "You have to know your own needs beforehand, and be willing to spend some extra time when dealing with the Web," says Ken Yancey, CEO of the Service Corps of Retired Executives (SCORE). Unlike your local loan officer, no Web site can conduct a conversation about your financial options.
Equally important, make sure you fit the lender's profile. Some venture capitalists will only invest in tech companies, while some angel investors only consider local businesses. Other banks have limitations as to the size of loan requests that can be made on line. According to WomenAngels.net, 98 percent of the site's online loan seekers don't meet its qualifications. Spend five minutes reading about the lender instead of wasting five days waiting to be rejected because you don't meet its qualifications.
Your online request is only a starting point. Some lenders can complete a loan without ever seeing your books or tax returns, but most review your request and then contact you by phone to take the next step. "We had a recent case where someone was surfing the Web and found our site," says Judy Hart, senior vice president and director of marketing for Business Lenders.com. "They filled out our form to see if they met SBA eligibility requirements, and after seeing their request, we called them. The loan itself was really worked out by phone, and our relationship with that individual started with the call."
Before You Hit Send
Once you've identified a promising lender, the next hurdle is the application process. Before sending off a form or e-mail, double-check your information. The lender will eventually ask for tax returns and other financial statements after the initial form, so don't fudge numbers you're not sure of. Also, only submit the information requested. Providing a business plan or tax informationthe lender hasn't requested may hurt your chances.
In addition, don't apply for multiple loans. Although you may be tempted to spend a morning shooting off several e-mails to different banks and lenders, you won't benefit from it. In fact, because of the credit checking involved, making requests to several lenders can hurt your overall chances. If you must have several responses, consider sending one application to a third-party site. LendingTree.com, for instance, will match a business' loan request with four possible lenders.
When it comes to the security of the data you're sending, the rules are the same regardless of which site you choose. "Look for industry standard stamps," says Minna Tao, the financial market manager for VeriSign, a provider of Web security infrastructure products and services. "A Secure ID sign indicates that the company takes Web security seriously and that they are using the best technology possible."
Always read the fine print. A slick site and promises of a rapid approval won't matter if you find yourself paying 28 percent interest. Don't let the lack of face-to-face communication keep you from asking questions or cause you to make costly assumptions. "Common sense is the rule of the day," Yancey advises. "If something sounds too good to be true, it probably is."
Do some digging around off line if you're interested in a particular lender but aren't familiar with it. Call the Better Business Bureau and find other businesses that have borrowed from it. Better yet, call them directly.
For the Tenagra Corporation, the Web eventually turned out to be a goldmine. After his initial unsettling experience, Kurtzman found a number of banks in his home state of Texas with the help of Yahoo. "We applied for an SBA loan using a form on one bank's site." he says. "The bank got in touch with us, came to our offices for an interview, and granted us a $100,000 line of credit after two weeks. It was a great experience."
Here are just few of many online business lending resources:
Get offers from up to four different lenders.
Offers funding within 24 hours.
The home page for the first structured women's "angel" investment club in the country.
Get counseling from successful business owners on a variety of topics in addition to information on online lending.
For now, find information on SBA loans and how to contact your local office. The site will soon offer SBA forms.