Our Guide to Online Business Loans
Many online lenders are not banks in the traditional sense, but instead offer “alternative” financing. For example, an online lender might offer cash advances and invoice financing. Further, online lenders are often willing to work with businesses that traditional banks have shied away from.
Many “bankable” clients are now working with online lenders as well. Why? Online loans are generally easier to apply for and financing is received faster than traditional banks. Due to this, small businesses that would easily qualify for traditional bank loans often chose online lenders instead.
Wondering whether you should turn to an online lender? Curious about the application process and what the financing options are? Keep reading!
Advantages of Online Lenders
Obtaining an online business loan comes with many advantages, including:
- Application process that requires less documentation and can be completed anytime.
- Quick response (often 1 business day or less).
- Funds are generally distributed more quickly.
- Lenders may be willing to work with less-established businesses or those with poor credit.
These are just some of the many benefits of applying for a business loan online. Of course, the most important advantage is access to financial capital that you can then invest in your business.
Disadvantages of Online Lenders
While obtaining an online business loan comes with many advantages, there are some drawbacks, including:
- The plethora of choices can be overwhelming.
- Scams are prevalent on the Internet.
- Interest rates may be higher than traditional loans.
While there are drawbacks to applying for online business loans, many of them can be mitigated with due diligence.
Different Online Business Financing Options
Online lenders offer a variety of financing options including term loans, lines of credit, cash advances, and invoice financing. Each of these financing options provides its own unique advantages. We’ll examine each one, so you can determine the online financing option that’s right for you.
Term loans require regular, fixed payments and interest is charged in exchange for financing. Typically, term loans are considered “traditional” loans.
- Streamlined application process.
- Often affordable interest rates.
- Not required to surrender equity or sales.
- Application process usually requires considerable documentation
- Little to no flexibility in payments.
Lines of Credit
A line of credit is like a credit card. Your business will be provided with a credit limit, and can draw funds as needed until the limit is reached.
- Offers quick and easy access to cash (once approved.)
- Provides financial flexibility.
- Flexible payment terms. Pay interest only on withdrawn amount.
- May have to pay annual fees.
- Need to monitor variable interest rates
With a cash advance, you’ll sell a portion of your future credit card earnings in exchange for immediate funding.
- Remittance is flexible, as it is based on your earnings.
- Considered easy to qualify for.
- No upfront collateral required.
- Total costs can be higher than traditional financing options.
- Will reduce future earnings.
Accounts receivable financing is like a cash advance in that you aren’t receiving a loan, but instead selling an asset. In this case, you’ll sell invoices in exchange for financing.
- No need for collateral.
- Lender assumes risk of collecting receivables.
- Upfront collateral isn’t required.
- Total costs can be higher than more traditional financing options.
- Will reduce future earnings.
The application process will vary from lender to lender. The process will also be different for each financing option. Invoice Financing, for example, will require you to submit invoices. For a cash advance, the lender will require credit card receipts.
The Business Application Process
- Collect relevant documentation, including Profit/Loss sheets, income statements, and documented expenses.
- Find your business license.
- Obtain a copy of your business lease and/or title for property.
- Organize your bank statements from the last three months.
- Gather your personal financial information, including your income tax returns.
- Examine a variety of lender websites, and review the terms and conditions.
Each application may differ, but by following this list, you’ll already have most of the required documents and information on hand. Try to be as thorough as possible while examining financing options, and ensure that you’ve completed your application correctly.
Consider Online Business Loans
Online business loans can be a great resource for businesses in need of financing. Online lenders offer a variety of financing options, allowing you to select the financing that works best for you. The relatively quick and painless application process is also a plus for busy business owners.
No matter your situation and funding needs, remember to consider online business loans!
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.