Loan sharks are a person or entity that lends large sums of money with an extremely high interest rate in a short amount of time. They often use threats to collect debts. The interest rates on the loans are typically well above an established legal rate. They can be found in neighborhoods with an insufficient number of banks, on the internet, or through personal networks. Loan sharks lend loans from funds that are generally from an unidentified source and work for personal businesses or unregistered entities. Anyone who is desperate for money fast is drawn to loan sharks. There are, however, several different alternatives to loan sharks.
Alternatives to loan sharks
People and businesses have several alternative choices for obtaining loans. For example, payday lenders are a legal form of high interest lending offered to borrowers. They are registered entities that follow standard credit application procedures and require proof of employment and income. The principal of the loan provided is based on a borrower’s income and credit profile. A line of credit is a type of financing that can be obtained from a bank or an online lender. A borrower is granted a sum of money that can be taken out of at any time. Online loans have less strict requirements with regards to credit score, time in business, and annual revenue compared to business loans. It is also easier to apply for an online loan and they take less time to be funded. These types of loans usually carry a higher interest rate than bank loans though. Term loans aka “installment loans” is a more traditional form of business financing. While maintaining the same fundamental borrowing and fee structure as traditional loans, an online loan allows people to receive and send payments electronically with little confusion.
Several other options include:
- Merchant cash advances which are basically an advance on a business’ future earnings.
- A personal loan.
- A business credit card which can be used to pay for business expenses.
- Microloans that can be for a few hundred dollars from a nonprofit lender
- Crowdfunding is used to raise capital from peers online
- SBA loans
- Invoice factoring where a business gets paid for unpaid invoices from a financing company who in returns gets paid by the customers
- Invoice financing is when a financing company grants someone a line of credit that uses unpaid businesses as collateral
- Equipment financing is borrowing money that is used to the equipment needed to run a business
- A business grant is free capital given to specific types of small businesses and is the hardest financing to get.
Loan sharks may be willing to give out large loans, but it comes at a high price. While people or business owners who are desperate may turn to loan sharks, they should always remember there are other options available.