How to Weigh Your Options When Deciding on Financial Products
Office Depot. Sam's Club. Google. They're brands your business relies on for everything from office supplies to advertising. Now they're trying to capture portions of the business financial services market. Walmart, Sam's Club and Office Depot have entered the microloan game, offering $5,000 to $25,000 loans--typically an unattractive segment for banks and other financial institutions because of the small loan size. Earlier this year, Google announced a business credit card for select AdWords clients to help them fund their purchase of that service.
But it's still important to do some digging rather than assume these household names provide the best option, says financial expert Denise Winston. Although the financial products are being marketed by names you recognize, they are actually issued or funded by a partner financial institution. For example, Google's MasterCard credit card is issued by World Financial Capital Bank. In the case of Walmart and Office Depot, the partner is Walnut Creek, Calif.-based Superior Financial Group, an SBA-approved non-bank lending company. Applying for a loan online via the Sam's Club website yields a 20 percent discount off the $450 fee charged if the loan is funded, while the Office Depot discount is 10 percent.
Interest rates are tied to prime and vary based on the size of the loan, the creditworthiness of the applicant and other factors. (The SBA reports that typical interest rates for microloans run between 8 and 13 percent--a rather wide margin, according to Winston.) Google's low-profile credit card interest rate is reported to be a low fixed 8.99 percent with no annual fee. However, since the card can only be used for Google's search engine marketing services and is currently only offered to a test audience of Google advertisers, it has limited utility for business owners.
Those variables in fees and interest rates, especially on unsecured financial products, are where business owners need to focus their due diligence, Winston says. Check with your state's banking commissioner and consumer affairs offices to see if complaints have been filed against the financial institution. And, as always, look at all your options to be sure you're not paying more than you have to for the loan. The SBA publishes a list of approved microloan intermediaries that can help you find competitive offers at sba.gov/content/microloan-progam.
"The affiliate commissions being paid to the companies can make the loans more expensive," Winston says. "You need to compare these products with others that might be available through SBA lenders or other financial institutions to be sure you're getting the best deal."