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Small business owners who want access to capital can turn to non-bank loans.
If you decide to follow this path, you must be very careful about the lender you choose and carefully review the conditions and disclosures, said Joyce Klein, FIELD program director at the Aspen Institute's Economic Opportunities Program.
There is a range of products you can access online, from installment loans to lines of credit. And their terms may require daily payments via your bank account or take a certain percentage of the merchant's transactions.
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"You have to be very careful," said Klein. "It can be difficult to understand how capital pricing, the capital payment structure, the prepayment requirements of capital, are tied to your cash flow and financing needs."
You can also face high financing costs, even if you repay the loan sooner than expected.
The risks badociated with non-bank loans have prompted the Aspen Institute and some lending organizations to form a charter for the rights of small business borrowers. The document outlines the rights that borrowers should have and a set of standards of practice for lenders and brokers. It also includes a list of participating financial institutions.
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