The Fintech age is upon us. There are still opportunities for small businesses to apply for ‘old fashion’ standardized loans but the financial technology fast loan industry aka fintech is emerging fast. Businesses are no longer waiting weeks or months for cash nor are they filling out days of paper work required to qualify for a standard loan.  Instead fintech gives you answers within minutes and money can come as quick as a few hours.

Although there are plenty of benefits to fintech, there are some negatives as well. 

Karen Gordon Mills, co-author of the Harvard Business School study exploring alternative small-business lending, provides examples of fintech lending problems that can occur. “No federal regulator has authority over small-business borrowing the way they do over consumer borrowing. The Truth in Lending Act does not apply to small-business borrowers, so you don’t have transparency. Small businesses might not know what they’re paying.”  Mills explains that in addition to zero regulatory authority, alternative lenders usually charge extremely high interest rates.

For those looking for alternative options for lending, here are a few additional things to watch for as you proceed with any company according to Mills’ Harvard Business School study:

  1. High cost – Lenders charge APR above 50% ·
  2. Double dipping – Companies that have borrowed more than once incur a fee each time they renew their loans ·
  3. Hidden payment charges – Alternative lenders require payment of full interest even if the loan is paid off early ·
  4. Misaligned broker incentives – Brokers may look out for their own interests when negotiating loans. A broker may recommend the most expensive loan because they earn the highest fees ·
  5. Stacking – “Multiple lenders provide loans to the same borrower, resulting in additional and hidden fees” 

-Ray Hayes

USA Today


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