If you own a small business and you’re looking for financing for your business, then you should consider an online business loan lender. Today, there are more online business loans available than ever.
If you wanted a loan for your business some years back, you would probably have only the option of finding a traditional bank. But with recent technological advancements, it is now easier than ever to get an online business loan.
Getting a loan from a traditional bank has almost been very difficult since most commercial banks consider lending to small businesses as a risky investment. The loan approval process in a conventional bank is also usually prolonged because of the many regulations and qualification requirements. They typically have a set minimum limit of the loan to take.
There are numerous online small business loan lenders today. Online business loan lenders have entered the lending marketplace to bridge the gap since they lend loans facilities to small enterprises that don’t qualify for loans in a traditional bank. With online business lenders, the loan approval process is fast and requires less paperwork. Online business lenders are more flexible and don’t have a set minimum limit.
According to the study done by Harvard, using algorithms and technology has enabled online lenders to analyze your credit score standards. It may also check your eligibility by use of new found ways such as social media relations and customer reviews online. These new ways allow the online lenders provide easy access to loans than the regular money lenders such as banks.
Costs of borrowing for online business loans are generally higher. Online loans for business don’t only vary on price and size, but they also fit all kinds of business types and business funding needs.
Do thorough research to know the best option for your business so as not to run the risk of choosing the wrong business loan for your company. Some few questions you can ask yourself when going through your options include:
What Are Your Funding Goals?
The option you choose for business financing will partly depend on how much you need, and what you need it. For instance, if you know you only need a small amount for short-term business, you might want to consider taking out a microloan. But, if you’re going to undertake a big project, you need to a medium-term loan to get more significant amounts that you will repay over an extended period.
What’s the Nature of Your Business?
The choice of loan for a small business will also vary on the nature of the company. For instance, if your business is seasonal, your sales volumes are likely to be inconsistent from month to month, and so a loan with fixed repayment schedules is probably not an ideal fit. On the other hand, seasonal businesses that need to cover a few months of extra traffic might want to consider a business line of credit, so they can draw on funds only when they need to.
If you’re a business that has a very high volume of credit card sales, a merchant cash advance might be a viable option for financing your business. If your outstanding invoices are hurting your business’s financial position, using invoice financing might be a perfect idea.
Which Online Business Loan Can You Realistically Afford?
Online lenders have opened up credit for small businesses that couldn’t secure loans otherwise, but these loans come at a higher price. With online business loans, you will probably pay higher interest rates and fees than you would find attached to the traditional bank loans. So, stay realistic about what you can afford.
What Are the Eligibility Requirements?
Your online business loan options will be limited by what you can qualify for, and so you need to consider specific loan requirements such as annual revenue, average bank balance, and personal credit score that you will need to provide to meet a lender’s eligibility standards.
What Are Time Constraints?
If you’re using an online small business loan as a financing option, you’ll generally have a quick time to funding. But, not all these loan products have the same processing time. If you want a quick fix to finance your business, certain loan products such as short-term loans or merchant cash advances will fit your time constraints better. These quick business loans tend to be the products with the highest rates, so if you can afford to wait on the funds, you might save some money on rates and fees. For instance, SBA loans typically aren’t funded for at least 30 days, but you might able to secure more comfortable terms and rates for your business.
What Are Different Types of Online Business Loans and Their Qualifications?
- Term Loans
Many online lenders offer term loans. You receive a set amount of money, and you’re required to repay fixed monthly payments for a certain period until you pay the principal and interest in full. It is easier to qualify for a term loan from online business lenders, but they come with higher interest rates than bank term loans. Borrowers can access funds within a few days or weeks unlike in a traditional bank where the application process is long and tedious.
- Business Lines of Credit
Another type of loan is the business lines of credit. It is a revolving credit that works like a credit card since borrowers have access to a pool of funds to use in business when they need it. You pay the interest payments and principal amount when you start using the line of credit and so, you only pay interest on the funds that you take out. They are flexible products and include three types of business lines of credit which are unsecured lines of credit, secured lines of credit and short-term lines of credit. The unsecured lines of credit don’t require collateral, but they come with higher interest rates. The secured lines of credit require collateral such as a piece of equipment.
Short-term lines of credit can either be secured or unsecured. Short-term loans fit businesses that have an immediate, but short-term financing needs whether that’s covering an unexpected cost or a seasonal surge in activity. Taking out a short-term loan is a good option when something comes up, and you need money quickly though they come with higher interests since lenders need to protect themselves against the losses of lending to borrowers with lower credit scores or less time in business by charging high rates. Some of the most renowned short-term lenders online are Kabbage, OnDeck, and National Funding. Short-term Loans term is 3 to18 months, and their rates start at 14%. The loan Amount range from $2,500 to $250,000 and time to funding is as little as two days.
The best time to apply for a business line of credit is before your business needs the cash as it helps companies to cushion their cash flow. It is an excellent option if you’re a seasonal business, or you think you need a backup plan for a rainy day. The loan term is six months to 5 years, and the rates are 7 to 25%. The loan amount is $10,000 to over $1 million and the time to funding is as little as two days.
- Equipment Loans
Equipment loans are a loan alternative for businesses that plan to use the funding to purchase significant business items machinery, vehicles, office pieces of equipment or kitchen pieces of equipment. Instead of buying a piece of equipment in cash or if you can’t afford to pay for it in money, you can take out a loan and use the machine as the collateral. It increases the chances of getting qualified and hopefully gets you a better rate. It’s good to know that if you take out equipment financing loan, you’ll end up paying more than what the piece of equipment costs. Make sure that the revenue you’ll get from the equipment outweighs the interest payments you’ll make to the equipment lender each month before you take out this online business loan. The loan term is the expected lifetime of the equipment, and the rates range from 8 to 30%. The loan amount is up to 100% of the equipment value and the time to Funding is as little as two days.
- Invoice Financing
Another favorite type of loan is invoice financing. Your outstanding invoices are used to get a cash advance from a lender. A lender will then advance you a percentage of an invoice, for example, 85 percent and holds onto the remaining portion. Then, both of you will wait for your customer to pay, then the lender charges a certain percentage per week, for example, 3 percent. Once your customer pay, the lender will settle up with the remaining 15 percent, minus fees that are 1 percent per week plus an additional flat processing fee of around 3 percent.
Invoice financing tends to be an expensive way to fund your business compared to other small business loans. You’re essentially paying for access to the money now instead of later, and you’ll end up losing part of what your customers owe you to interest rates. Some of the most common lenders offering these online small business loans are Fundbox and BlueVine. The repayment term is when the customer pays the invoice; you receive the reserve amount, minus fees. The fees are about 3% + processing fee %/ per week outstanding, and the loan amount is about 50 – 90% of the total invoice amount. The time to funding is as little as one day.
- Business Credit Cards
Credit cards are another attractive financing option for certain businesses. They have introductory APR offers, rewards programs and cash back incentives that are ideally designed to appeal to the small-business owner. The key factor with this type is whether you have the forecasting ability and the discipline to pay your balance down.
- The Credit Line Builder
The credit line builder is a bit complex line of credit that is made up by combining various credit cards. Lenders that offer this credit line will help you draw cash from your credit card- based line for a fee. A majority of the cards in the credit pool come with a 0 percent introductory APR offer but this can be a tricky loan, and it is critical to making payments at the right times to avoid unexpected fees.
- SBA Loans
The Small Business Administration (SBA) isn’t technically a lender, but it helps small businesses find better and bigger loans that they wouldn’t usually qualify. The SBA does not give direct loans to small businesses but rather, encourages other lenders to lend to small businesses and guarantees a portion of the loans. They also set the guidelines for loans, which are then made by its partners that is lenders, community development organizations, and micro-lending institutions. SBA loans have an extremely competitive interest rate similar to what you’ll get from a bank loan. However, low-interest rates require high personal credit scores and strong business financials, so only top-notch borrowers will qualify for SBA loans. SBA Loans term is 5 – 25 years and rates range from 6 to 13%. The loan amount range from $5,000 – $5 million and the time to Funding is as little as 30 days.
- Merchant Cash Advance
Merchant cash advance loans can be approved and paid out in as little as one day with no need for you to provide lots of documentation. With a merchant cash advance, the lender advances you a lump sum amount of money, which you’ll pay back by allowing the lender to take a fixed percentage of your daily credit and debit card sales until you pay the loan in full. The lender only takes a percentage of your credit card sales, if you make less for one month, the lender takes less, and when your business is most successful, lenders take more from your account. A merchant cash advance has one of the highest rates around because they come with additional factor rates. A merchant cash advance is fit to fund a short-term need for business’s finances, but make sure you don’t get stuck in a never-ending cycle of daily payments. The repayment is automatically deducted each day through your merchant account, and the rates are 8% and above of daily credit card sales. The loan amount is $2,500 – $250,000 and the factor Fee: 1.14% – 1.48%. The time to funding is as little as one day.
Bottom Line
When it comes to choosing online small business loans, there are many options you can decide for your company. Sorting through them all can be an exhausting and confusing task, but I hope this guide will help you make an informed decision.