Small business owner smiles are increasingly turning to frowns when they get loans from online lenders.
Although more small businesses reported getting funding from online sources – 80% in 2015 versus 65% in 2014 – entrepreneurs who got approved by banks were happier than those who turned to online lenders.
The two most common complaints about online lenders were high interest rates and unfavorable repayment terms. Many small businesses discover after they’ve closed their loan that their actual interest rate (APR) is upwards of 30%.
Microbusinesses (with revenues less than $100,000) reported the largest financing need shortfall, followed by start-ups. Smaller loan needs are often met by SBA programs, including SBA Microloans and Community Advantage loans, which are not offered by large banks.