Online Business Loans – What You Need To Know
Small business funding is a crucial component that will help your startup grow exponentially.
Traditional lending institutions are quite rigid with their lending rules, and this locks out many small businesses in the startup phase from getting the much-needed funds to help them grow.
Fortunately, technology has made lending easier and many alternative lenders are filling the gap for small business owners who don’t qualify for traditional loans.
Online business loans, therefore, offer a great opportunity for businesses that do not meet the qualification requirements set by banks.
What are online business loans and how do they work?
Technology has opened doors for small businesses to access credit without going through the rigorous verification process done by banks and credit unions.
Small business owners can now make their loan applications online, wait a few minutes and receive an immediate response on whether they qualify for funding or not.
Unlike traditional lenders, online lenders have embraced technology and algorithms to analyze credit standards like business cash flows, credit scores, online customer reviews and social media interactions.
This has made it easier for them to make a quick approval decision and offer loans to businesses that qualify. Online lending, however, comes with a steep interest rate compared to conventional loans.
If you are just starting out, you may not qualify for this financing option because online lenders prefer businesses that have been in operation for at least 2 years and above.
It is, however, ideal for established business ventures who need quick cash but don’t qualify for traditional loans.
Once your loan request is approved, the lender will send you a notification informing you of the same. They will then allow you to read their terms and conditions, and if you are comfortable with them, you’ll append your signature on the loan agreement form for the loan deal to be closed.
You can do all this from the comfort of your home or office and have the funds credited to your bank account within the same business day.
How different are online business loans from bank loans?
If your business does not qualify for a traditional loan, online business loans may offer you another alternative worth pursuing.
Below are some of the key differences:
This is the number one reason why most business owners prefer online lending.
You don’t have to wait for weeks or months only for your loan request to be rejected.
Technology has made it easier for online lenders to do quick verification and offer an immediate response.
Unlike banks where you’ll need a lot of paperwork and waste time collecting relevant documentation, alternative lenders have a simplified application process.
Online lenders do not do the lengthy credit checks and verification. They also don’t have to follow strict government regulations when making an approval decision.
Depending on your lender, funds can be credited to your bank account within 30 minutes after an online application.
There are a variety of small business loans to choose from.
You dot have to be limited to the usual loan products offered by traditional banks.
Banks in most cases offer conventional loans like lines of credit, credit cards or term loans.
Alternative lenders, on the other hand, provides a large pool to choose from. You can apply for whichever loan you feel suits your business needs.
The loan amount you can borrow is also not restricted. You can actually borrow from $5,000 to $250,000.
Unfortunately, online business loans come with double digits interest rates and APR.
Since these loans are readily available and easily accessible, lenders take on even borrowers with bad credit. This increases their lending risk.
They, therefore, charge high interest rates to recoup their money as quickly as possible to minimize loss.
If you don’t have an attractive credit score nor have been in business for at least 2 years and above, chances are you are a risky borrower and lenders will charge you more.
A perfect credit score, on the other hand, can earn you an affordable SBA loan with interest rates ranging from 6 to 15%.
Unsecured business loans for bad credit and merchant cash advances come with double digits APR so, take caution when using them in boosting your business finances.
To qualify for online business loans
You have to fulfill certain lending criteria set by the lender.
While these lending requirements vary by lender, some are pretty common.
These are some of the eligibility criteria you’ll have to meet to qualify for small business lending from alternative lenders;
- You need to have a near perfect personal credit score
To qualify for this mode of business funding, your personal credit score matters a lot.
You may be wondering “why my personal credit?”
It’s a strong indication that you are either a responsible borrower or not.
The assumption is that if you can pay all your personal debts in time, you can also pay your business loans.
With a good credit score, you can qualify for better repayment terms and affordable interest rates.
Bad credit, on the other hand, makes you a risky borrower hence lenders will charge you more.
- How long have you been in business?
Both traditional and alternative lenders will want to know how long you’ve been in business.
It’s common knowledge that many small businesses cannot withstand the harsh financial ups and downs during the first five years of operation. It’s a risky venture to lend out money to startups.
Lenders, therefore, prefer businesses that have a stable transaction and revenue history.Since there are different loan products for various small business funding needs, it’s important to know which loan product suits you best. You should also factor their costs and impact on your business.Some of the best online loans you can explore are:
- SBA loans.
- Term loans.
- Business lines of credit.
- Invoice financing.
- Merchant cash advance.
We know that deciding on which loan product is best for your business can be a real hustle. Looking for reputable lenders is also a daunting task that may cost you time and money.
We can help make the process less tiresome by connecting you with reputable lenders who’ll make your funding needs easier. Fill out our online application forms today and let us help you realize your financial goals.