Hello again from your Small-Business Coordinator!
If you are looking for a loan to expand your business, be wary about where you go for financing. For small business loans, high-cost, short-term loans are becoming much more common.
These loans can have extremely high interest rates, averaging 94%! Try to avoid these expensive alternative lenders. When a lender provides a follow-on loan to a small business that already has a loan, that is called “stacking.” It is easy to get trapped in a cycle of repeatedly taking out new loans without being able to ever pay them off entirely.
Over time, this can be a big expense that sinks your small business. If you find yourself stuck in this lending trap, try to refinance into lower payments and a lower interest rate. To read more about these alternative loans, their impact on small businesses, and ways to escape the lending trap, check out this study from May 2016.
It’s worth noting that many businesses do not need loans to get started. One of the advantages of the Individual Development Account Program is that it makes it easier to get a business started debt-free. If you are a small business owner, or dream of starting your own business, and you not already part of the IDA Program, give us a call today to find out if you are eligible to join!
IDA Small Business Coordinator