Page 32 - Wire Rope News & Sling Technology - April 2019
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continued from page 30             which  is  cost.  “Fees  charged  by these   the credit score and the financial con-
         in specific industries, and their greater   platforms are high, often ranging from   dition of the borrower, the higher the
         knowledgeable can translate into more   three to seven percent of the loan,” says   cost of funds and the shorter the terms
         flexible lending policies.”        Vrancik.  When  you  add those  fees  to   of the loan.”
                                            the interest rate charged, she says, the   Funding from nonbank lenders also
         The Downside                       loan can be quite expensive, resulting   carries risks that business owners may
           Of course, alternative lenders aren’t   in an Annual Percentage Rate (APR) of   not  fully  appreciate, says  Vrancik.
         without  drawbacks — not  the  least  of   up to 40 percent or more. “The weaker   “One risk arises from the fact that the
                                                                               financial analysis required by nonbank
                              Vetting the Nonbank Lender                       lenders is often not as exacting as that
            Landing a good deal with an alternative lender requires careful planning and   of  traditional banks.  As a result  the
           vetting. The loan application should convince the lending platform that the bor-  financing can end up being a little too
           rower can capitalize on the borrowed funds and can meet the repayment schedule.  easy, and the small business owner can
            “Start by identifying what you need the money for, how much you need and   be tempted to take on more debt than
           for  how  long,”  says  Barbara  Vrancik,  a  small  business  financial  consultant   is  prudent.  That can  spell  trouble  for
           based in New York City (                        small businesses who are often under
            Then go one step further by showing the prospective lender how the bor-  very tight cash constraints.”
           rowed money will result in higher profitability, generating the funds required
           to repay your loan.                                                 Look Twice
            “Have a detailed plan showing how your loan will make at least two times   The  bottom  line  is  to  have  a  firm
           as much money as its total value,” suggests Marilyn J. Holt, a Seattle-based   grasp of your ability to meet the man-
           consultant and author. “And have a strong, verifiable plan rooted in reality for   dated repayment schedule. “If you can-
           how and when you will make your repayments.”                        not repay your loan quickly, then non-
            When researching prospective lenders, Vrancik suggests asking these questions:  bank lenders will be the bane of your
            • What are the interest rates and fees?                            existence,”  cautions  Holt.  “They  often
            • How frequent are repayments, and in what amounts?                move faster to collect their debts than
            • Does the lender require collateral?                              the large, cumbersome banks, and that
            • Will the loan restrict your ability to incur additional debt, or to operate   can ruin your credit. While they some-
              your business in any way?                                        times will restructure  your loan, that
            • Can you modify the terms of the loan if you should need a waiver or exten-  will seldom be to your advantage. Keep
              sion down the road?                                              in  mind that even though  they want
            Compare the answers from the prospective lenders and go for the best deal.
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