If you need money to cover a variety of business expenses but don’t like the hassle of applying for loans in-person, an online business loan is ideal. In this blog post, we'll dive deeper into online business loans and how they work.
What is an Online Business Loan?An online business loan is a loan you can apply for online from just about any location with internet access. Upon approval, you may receive funds to run, improve, or grow your business. Compared to traditional business loans, online business loans are faster, easier, and more convenient. If you pursue one, you won’t have to dedicate hours of time and energy to the loan application process. It’s a particularly great option if you’re a busy business owner or manager who can’t afford to step away from your daily responsibilities for too long.
Types of Online Business LoansNot all online business loans are created equal. In fact, there are several different types you can choose from including:
- Term Loan: Term loans are a lot like traditional bank loans. A lender will lend you a lump sum of money upfront and you’ll pay it back via fixed monthly payments plus interest.
- Business Lines of Credit: Business lines of credit are similar to credit cards; you can withdraw as much or as little as you’d like up to a set credit limit.
- Equipment Financing: Equipment loans are designed to cover the partial or entire cost of equipment such as cranes, dump trucks, ovens, and computers. The equipment will serve as collateral so if you default on your loan, the lender will seize it.
- Invoice Financing: Invoice financing is when a lender advances you a percentage of your invoices. You’ll remit the advance with fees over a predetermined period of time.
- Merchant Cash Advance: A merchant cash advance is essentially a cash advance based on your credit card sales. It can provide you with the cash you need within 48 to 72 hours.
The Pros of Online Business LoansThe most notable advantages of online business loans include:
- Quick Online Applications: Online business loans usually come with fast applications. Once you enter your personal and financial details on your computer, laptop, tablet, or mobile phone, you can submit your application within minutes and wait for a decision.
- Fast Funding: Many lenders who offer online business financing will deposit your funds quickly after you’re approved. Depending on the lender you choose, you may receive your money within 24 hours, a few business days, or even the same day you apply.
- Lenient Requirements: If you’re a new business or have bad credit, you may still get approved for an online business loan. Many lenders have lenient requirements and are willing to look beyond your history or credit.
- Various Options: There is no shortage of additional working capital options in today’s digital era. Banks, credit unions, and online lenders offer them with a variety of rates, terms, and perks.
- Prequalification: Some lenders will allow you to prequalify for an online business loan. Once you fill out a few questions about yourself, you can find out whether a lender will extend you a loan offer. Best of all, prequalifying won’t affect your credit score, so this makes it easy to explore your options and shop around for the best deal.
- No Collateral: In most cases, you don’t need to put up collateral like your commercial property or vehicle. Most online business loans are unsecured so you don’t have to worry about losing a valuable asset if you default.
The Cons of Online Business LoansSeveral drawbacks of online business financing are:
- The Entire Process is Online: In most cases, lenders that offer online business loans will request that you complete the entire process online. Once you apply online, you’ll also receive a decision online. If you move forward with an offer, you’ll finalize your documents online as well. If you don’t feel comfortable doing everything online, you may opt for traditional loans at a brick-and-mortar lender instead.
- No Personalized Service: With an online business loan, you forgo the option of being able to visit a brick-and-mortar location. It will be more difficult to develop a relationship with your lender and receive the personalized service you may desire. The good news is most lenders that offer online business loans will support you via phone, email, and online chat.
- Security Concerns: To apply for an online business loan option, you’ll need to enter your personal and financial information online. Even though most lenders secure their sites with rigorous measures, security may still be a concern.
- Loyalty Discounts are Rare: Lenders with brick-and-mortar loans are known to offer loyalty discounts to customers who have other products with them like checking accounts and savings accounts. Loyalty discounts are less common with lenders that only offer online business loans.