What do you think of when we say crowdfunding? Of course, you automatically start thinking about GoFundMe and Kick-starter. However, today, we will talk about a different kind of crowdfunding that can get you out of any financial mess possible.
Debt crowdfunding is a comparatively new concept that is taking the startup world by storm. This crowd-lending process can help you wipe away all your credit card debts at one go. You will not have to apply to third parties and wait around for months for loan approvals. This kind of peer-to-peer lending is fast, reliable and extremely helpful for all fresh entrepreneurs.
Why will a bunch of investors lend you money?
Investors usually use a third party platform to find loans with good returns. You and other entrepreneurs who use the same platform will have the loan listings updated on these platforms. Your prospective investors can see all the details of your loans. This means, although there is a third party platform, there is no involvement of banks and credit unions in the process. This makes it more convenient for your lenders as well. Different kinds of software are used by these lending platforms to match investors and the entrepreneurs. The amount of the loan and the APR depends directly on your credit score.
Here are 5 things you must know about debt crowdfunding before you go about making your debt situation better –
For what purposes can you use the loan money?
You can use the money for any purpose you like. You need to provide no explanation or update your investor for every expense. However, we recommend not spending it on Xboxes and new espresso machines, as you have gone for debt refinancing because you are in a financial mess in the first place.
You can get/use a loan for:
- Refurbishing your office
- Getting new gadgets and machines
- Debt consolidation purposes
- Starting a new project
- Getting a new company car
- Adding medical expenses
- A vacation
- New office pet
- Literally anything! (as long as it’s a good business decision)
Peer to peer lending is especially great if you are not having much luck personal financing websites. The rates are usually lesser than your credit card rates. You can easily use the loan amount to pay off all your outstanding credit card bills and consolidate your small loans. This is an unconventional debt consolidation loans for small business, but it is ideal for startups who have great innovative business ideas up their sleeves.
Choosing the right online consolidation and lending company –
Not every business has the same requirement. Similarly, not every lending company has the same terms and conditions. Before shopping for loans online, we would suggest you look around some of the best offers made by peer to peer lending companies.
You need to be extremely careful while leaving your business details on online platforms that do not have many reviews and testimonials. There are many “fake” websites that can harm your business and your credit profile by using the same information about your business. Be sure to pick only the ones that are highly recommended by other businessmen.
Check the rates –
You will find many platforms that offer almost instant loan approvals, however they have sky-high interest rates. The more reliable and trusted ones take a little bit of time putting together the best possible investor profiles for your company. Although they are a little bit slower, they can find you lower interest rates.
Will the APR affect your credit score?
NO! APRs rarely have any effect on credit scores. Make sure, you are making a “soft enquiry”. These are when you check your credit report as a part of any background check. In case of a “hard enquiry”, like the kind conducted by a financial institution, your credit score may be lowered a couple of points.
However, your credit score will definitely determine your APR. Therefore, if you receive a higher APR it may be due to your poor credit history. You may want to work on your credit score a little bit before you go out looking for investors online.
Understand your loan and its terms –
Before signing on the dotted line, you must understand your loan terms. Here are the few things you MUST consider –
- Is there a penalty for early completion of payment?
- Are they as for any collateral?
- Are the payment rates or interest rates floating?
If the answer of any of these 3 questions is a “yes”, then you need to consider the loan once again. You need a loan that makes this financial turmoil easier to handle. Any loan with floating terms of investment and multiple chances of penalties may add up to your financial burden instead of sorting it out.
Check your advantages –
There are quite a few methods of getting consolidation loans nowadays. While we have seen most businesses soar with the help of peer-to-peer lending, it might not be the best option for you.
You should check out the best-secured and unsecured loan options from your bank and credit unions as well. Although sometimes, they are more tedious they offer more security as compared to online consolidation companies. So make sure you have all the information you need to weigh the advantages offered by your P2P investors against other more “traditional” loan formats.
Consolidation loans are meant to help your business finances. Therefore, you need to make informed decisions that can help your employees and your business to thrive. A good businessman isn’t one who has never been in debt. A good businessman is the one who always finds a way to get out of debt.
Isabella Rossellini is a well-known financial advisor and online market guru. She heads her own funding initiative that has helped thousands of businesses in Central and South America. She has an interesting take on debt consolidation loan that all business owners need to know.