Understanding Subprime Lending

There are many types of loans available for entrepreneurs. Since banks are uptight about approving loans because of the risks it entails, various alternatives to funding small businesses become widely available. One of them is subprime lending. There are some who think that subprime lending would cause more harm than good to businesses and consumers alike. 



The book Broke, USA exposes subprime lending and the review by Pierre DeBois entitled Broke USA: An Expose of Subprime Lending and Its Impact on the Economy  further shows the effects of this particular alternative to small business financing. 


What it is exactly:
Subprime Lending is a type of loan which are afforded to individuals who are considered to be high risk borrowers by banks and other lending institutions. These individuals are deemed high risk because of low credit score. Since subprime lending grant loans to high risk individuals and businesses where banks don't, a higher interest rate is offered on top of the loan. 


Now, most borrowers do not know that what they're getting is a subprime loan mainly because different terms are used since subprime is not particularly a very attractive term to use in any line of business. However, the concept is still the same. What makes this particular type of loan attractive especially to small business owners is that even if you do not have a good credit standing, you will be granted the loan as long as you agree with the terms of the loan. 


Aside from having a high interest rate, there is prepayment and other penalties. In light of all this however, subprime lending can still be considered by the average entrepreneur especially since this will enable them to have purchasing power. Like everything in business as in life, entrepreneurs should take this with a grain of salt before taking the plunge. Consider your ability to repay and never sign on anything that you don't understand.