Businesses, and small businesses in particular, sometimes have no other option but to take out a loan. It can help them resolve financial issues and keep their heads above water until they can get back on track on their own.
Borrowing money from one of the big banks can be more complicated than borrowing from an alternative lender. The latter may offer better deals and more options for small businesses, and the odds are they are more willing to work with you to find a loan that you’re eligible for.
There’s even the possibility of applying for a loan online, which can have multiple benefits. Can an online lender be the best fit for your business?
Trying to decide which entity to borrow from may be a little overwhelming, especially if you’re racing against the clock. In going over some important features and conditions you should look for, this guide may ease your decision-making. Make sure whatever deal you end up with is among the best online business loans available today.
About Online Business Loans
Here are what you should know about online business loans before you start shopping for one.
What’s an Online Business Loan?
Online business loans have become popular in the last 10 years because they typically give you access to funds more quickly than conventional loans. If solving a financial problem is urgent for your situation, borrowing money from an online lender is the fastest way to do it.
An online business loan differs from the traditional one because the whole process is done online. It saves you both money and time.
It usually takes less than 10 minutes to apply for an online loan. After that, you should wait for your lender to notify you about their decision, and if your application is approved, you may even have the money in your account on the very same day.
Are You Eligible for an Online Business Loan?
To borrow money from an online lender, you need to meet a few requirements. Of course, these requirements will vary depending on the lender.
However, this should give you a general idea about what your business should have to apply for an online loan. You may get approved for a loan even if you don’t meet all the conditions, but you’ll likely have to pay a higher interest rate. Keep this in mind: the better your scores, the better your chances of approval and the lower the interest rate.
Most online lenders require that you have:
Good personal credit score (usually over 600)
$50,000 – $200,000 in annual revenue
Been in business for at least a year
Some lenders may approve your application even if you’ve only been in business for less than a year. Some don’t require a minimum annual revenue or minimum personal score. Other requirements can depend on the location of your business and on the industry your business belongs to.
Why is an Online Business Loan a Good Idea?
Several factors may affect your decision to opt for an online loan rather than a traditional one.
Application Is Done Online
It’s the 21st century and it’s only natural that we prefer to pay bills, make reservations, take courses, and do everything else online. Borrowing money is no exception. The possibility of applying for a loan online is surely one of the greatest benefits of this kind of loan.
It’s extremely convenient to submit an application from the comfort of your home or office, with little paperwork and more time to dedicate to ongoing business matters. You get to avoid numerous visits to your bank and endless waiting in lines.
Consisting of a couple of steps that are more or less the same for any lender, the application usually doesn’t take more than a few minutes.
The first thing you need to do is to run a quick check to see if you qualify for the loan. After that, most lenders allow you to upload the required documentation, which is often minimal, and you can then continue by choosing the loan you’re interested in. After that, you wait for your lender’s response and that’s basically it.
You Can Access the Funds Faster
Typically, if your application is approved, you can gain access to the money almost instantly.
Conventional loans sometimes require that you wait a certain time before they transfer the funds to your account, but online lenders speed up this process in great measure. Sometimes, if you apply for a loan in the morning and your application is soon approved, the approved amount may show up in your account by the end of the day.
On average, it doesn’t take more than a few business days.
Loan Shopping is Easier
Besides the stress, going to multiple banks just to find the best deal usually takes a lot of time. But shopping online for a loan forgoes all of that and it can even be fun.
Having everything in place makes it easy to compare different deals and choose the ideal fit for your business. You can always double-check the info in case you forget something important.
Lenders Can Be More Objective
When you apply for an online loan, the lender only evaluates your credit score and your business’s banking and financial history.
This contributes to a more objective evaluation where the approval or rejection depends completely on facts. It leaves no room for emotions to cloud anyone’s judgment.
More Flexible Repayment Schedule
Banks usually have strict rules that the bankers are not at liberty to adjust to each individual client’s circumstances.
On the other hand, online lenders may be ready to personalize your loan to suit your needs better and make the repayment schedule more convenient for your business’s cash flow.
Some online lenders may even try to find a compromise if you run into an unexpected situation and you’re temporarily unable to keep up with the agreed schedule.
Best Online Business Loans for Your Business
When you start searching for the most suitable loan for your business, you will probably be swamped by a million different offers. How will you know if an offer is good?
Before You Start Looking
First of all, take your time looking for the best deal, as being patient can really pay off in this case. Taking out a loan is not something you do every day so consider all the factors carefully and be certain about what you want.
These questions are crucial:
How much money do you need to borrow?
What do you need the money for?
How much can you afford to repay monthly or weekly? Some types of online loans may require weekly payments
How much time do you wish to spread the loan over? Each payment is lower with a longer loan period but you’ll end up paying more in accrued interest
Knowing the above, it will be easier to shortlist the loan types and the lenders that offer the best deals.
Also, don’t take the first deal. Some lenders are ready to negotiate the conditions further. Don’t think that any offer is off the table before you ask the lender about it.
What Types of Online Business Loans are There?
The best online business loans depend on your business needs. What may work perfectly for a service business that issues invoices may not be the best or suitable for a retail business that processes credit card payments. What are some of the most common types of online business loans?
Short- and Long-Term Business Loans
You agree to repay the loan over a period of time, usually in monthly installments that also include the interest. For a short-term loan, the amount of money is rarely large and you can pay it back in three years at the most. Long-term loans are typically repaid in 10 years (or less), which allows for bigger amounts of money. When to use these? If your business is facing a temporary shortfall (short-term loan), or if you have a big purchase or project coming up that’s in the strategic interest of your business.
Business Line of Credit
Your lender approves a certain credit limit and you’re able to withdraw money up to that limit whenever you’re in need. These loans are very flexible, almost like a credit card. What can you use this loan for? Virtually anything, including monthly expenses and paying yourself.
Relatively new to online business financing services, invoice financing allows you to get an advance on your outstanding invoices. You get cash from your lender in advance and in return, the lender gets a certain percentage of your invoices. Obviously, only businesses that send out invoices are eligible for invoice financing. You can use it for anything.
One particular scenario is a business that’s experiencing rapid growth but it’s unable to support the growth because it has to provide the service first before sending out invoices, which some customers may take their sweet time paying.
Merchant Cash Advance
This type of loan usually comes with high interest rates. It’s only open to businesses that process credit cards. If you have a solid history of credit card charges, you can get a loan based on that and sign away a portion of your future credit card charges toward repaying the loan.
If approved, you get the money upfront and your credit card or merchant account processor will send an agreed-upon percentage of your daily credit card receipts to the lender. As to when to apply for it, one scenario is if you have an opportunity to buy large quantities of stock at a discount.
Features of the Best Online Business Loans
There’s more to a good loan than the amount of money the lender will approve. That’s why it’s recommended to check out a couple of deals before making the final decision. You’re looking to get the best interest rates, the most flexible repayment schedules, and the lowest origination and late fees.
What Does a Good Offer Mean?
A Trustworthy Lender
The internet is a bit like the Wild West still. Before you do anything, make sure the lender you’ve chosen is trustworthy and has good reputation.
This is very easy to do. There are websites, such as Trustpilot, where you can check your lender’s info, as well as read reviews from other clients. If your lender has mostly good reviews and a good score, you can relax and go for it.
The Type of Loan Should Fit Your Needs
Plan your loan in advance so you know exactly how much money you need and how you’re going to pay it back. This will help you decide what type of loan to opt for.
If you’re not sure whether to choose a short-term loan, a long-term loan, or maybe invoice financing, see if the lender can provide an expert to guide you through this process and help you choose the best option for your business.
Quick and Easy Application and Funding
A good lender shouldn’t make the application process too complicated.
If you’re applying online, it’s possible that you couldn’t get a conventional loan from a bank or maybe you haven’t been in business long enough. Or you may simply need the funds as soon as possible.
Therefore, the application should be simple, straightforward, and optimized for your smartphone as well.
Of course, the amount of money you are able to borrow depends mostly on your credit score, business revenue, time in business, etc.
But you may find yourself in a situation where you need more than the lender is willing to offer. If so, you may check with another lender. Online lenders often look at your situation differently and some might be willing to approve a higher amount.
Low Credit Score Requirement
Some lenders will approve your loan application even if your credit score is low. As mentioned before, some online loans have no minimum credit score requirement, although you can count on paying higher interest rates.
Low Interest Rates and Fees
Even though online lenders are known to have higher interest rates than big banks, that doesn’t always have to be the case.
Lower interest rates and fees make your overall loan more affordable. You should pay attention to this while loan shopping and calculate the cost for each lender you’re considering.
Flexible Repayment Schedule
Go through all the repayment options available. Even if you think nothing suits your needs completely, check with your lender first. They may find a solution that works for both of you.
Note that the overall interest depends on the loan period. Although the total cost of the loan is an important aspect that you should take into account, it’s more of a balancing act. Assuming the same loan amount, a shorter loan period results in higher monthly payments, which you may not be able to afford.
In that case, you’d have to spread the loan out to a longer period — the monthly payments will be smaller but you will end up paying more interest through the longer life of the loan. Furthermore, the lender may charge a higher interest rate if the loan period is longer.
Soft Credit Inquiry
Some lenders may not check your credit, but that’s usually only for certain types of loans. In invoice financing, for example, your customers’ credit scores may be more important than your own, as the lender depends on your customers to pay their invoices.
If you don’t want a credit inquiry to show up on your credit report and affect your credit score, talk to the lender to see if it’s possible to avoid it.
Settle for the Best
Taking out a loan can be a necessity for small businesses and sometimes it’s not easy to find the ideal fit for your business. Some lenders offer low interest rates but not flexible repayment schedules. Others may be the other way around.
Careful research will certainly help you determine what type of loan you need and what lender has the best deal to offer you. Make sure you know your options and don’t accept just any conditions.
Today’s online lenders are improving their offers every day to include some of the best online business loans for any business’s needs. It’s very probable you’ll find the right solution to boost your business’s financial health and growth.