Online Business Loans: Compare and Apply
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Online Business Lenders
Common Uses for Online Business Loans
Working capital: Funds to help maintain short-term, daily business operations such as payroll, rent, marketing, and insurance. Working capital is the value of a business’ current assets minus current liabilities. Equipment: Funds can help purchase items like office equipment, tools, vehicles, kitchen appliances, and more. Inventory: Funds can help with stocking up on inventory either in preparation for a busy season or to capitalize on a good deal from a manufacturer or wholesaler. . Cash flow management: Having funds to maintain cash flow is crucial to running a business. Online commercial loans can help small business owners manage their cash outflows without putting as much strain on the business financials
Who Benefits from Online Business Loans?
Small business startups: These businesses have a growth-mindset but may not have the history or business credit to get approved for a bank loan. Startups can use online business loans to get established with less expensive purchases like inventory, office supplies, and small equipment, and lines of credit for unexpected or recurring expenses. Businesses with poor credit or no credit: Small businesses that aren’t established often don’t have enough history or revenue to qualify for large bank loans. Additionally, a business with little or poor credit will often struggle to find adequate financing. Bad credit business loans from online small business lenders may offer the necessary financing needed to grow or start your operation, regardless of creditworthiness. Businesses needing funds quickly: One of the biggest advantages of online business loans is their quick review and approval process. Bank loans can take weeks or even months to be approved, leaving businesses without necessary funding for extended periods of time. Online lenders can often approve and fund loans within days, and sometimes even within a few hours. Businesses needing short-term financing: For businesses who don’t want to commit to a long-term business loan, online lenders also offer short-term financing, or loans that can be paid back in less than 18 months. Keep in mind that short-term financing typically comes with high APRs.
Bank Loans vs. Online Business Loans: What’s the Difference?
Online Business Loan Advantages
Flexible: Online lenders typically go beyond traditional bank offerings, which include term loans, lines of credit, and credit cards. With online business loans, you likely have more flexibility with loan amounts, terms, qualifications, and loan products, including cash advances and peer-to-peer lending. Fast: Compared to bank loans, online business loan applications typically require less paperwork and can be processed much faster due to technology. Able to compare multiple options: With online lender comparison tools, you can compare different lending options matched to your qualifications and needs with just a few clicks of your mouse. Readily available: Online business loans are available at various rates, terms, and conditions for businesses of any size and with various funding needs. No matter what your business needs and goals are, there’s likely an online lender who can help. May be easier to qualify for: Compared to traditional banks, online small business lenders may be more likely to provide funding to medium- or high-risk applicants because they consider factors beyond credit score, like education, job history, and business revenue. It may also help that online lenders typically offer smaller loan amounts, which are less risky to them. Additionally, they may not require collateral in the form of business or personal assets, which can be helpful for businesses that don’t have the collateral required for some bank loans.
Online Business Loan Disadvantages
May be more expensive: Rates and fees for online business loans can be higher than those of bank loans, due in part to their high level of accessibility. Generally, the riskier it is to lend to a borrower, the higher the interest rates and fees are. Limited in-person interaction: Because they don’t have storefronts like traditional lenders (e.g. banks, credit unions), your face-to-face interaction with alternative lenders may be limited. Some business owners may prefer the in-person interaction to build the relationship and trust with a potential lender. If you relate to this, know that some alternative lenders participate in the Small Business Borrower’s Bill of Rights*, which signifies they are self-regulating in an effort to remain transparent with their lending practices. Less established: Ironically, some online small business lenders could be small businesses themselves. Certain online lenders may not have the same financial stability or safety that traditional banks can offer.
Types of Online Business Loans
Business Line of Credit
Invoice Factoring or Financing
Peer-to-Peer (P2P) Lending
Merchant Cash Advance
Choosing an Online Lender You Can Trust
Make sure they are registered in your state: All lenders are required to register to do business in their respective states. Contact your state’s Attorney General’s office, or banking/financial regulation department to confirm the lender you’re considering is legal and legitimate. Look for well-known lenders: A good place to begin your search is with lenders you’ve heard of and who come highly recommended. Their reliance on reputation often leads to more credible practices. Read their Better Business Bureau (BBB) rating: Whether you’re familiar with a lender or not, it’s a good idea to check their BBB rating before applying for a business loan online. You can view any past complaints and get a good idea of what their reputation is. Read customer reviews: Customer and expert reviews can be a great resource when you’re comparing online lenders. If you’re trying to choose between similar lenders, reviews may help you come to a final decision. Before applying for an online business loan, make sure you’ve thoroughly read through different lender reviews. Check for media presence: Check if the lender has received media attention in the past, and if so, what it was for. If an online small business lender receives repeated bad press, it may be wise to search for another. Do they support the Small Business Borrowers’ Bill of Rights?: Some lenders choose to abide by the Small Business Borrowers’ Bill of Rights. You can check if a lender is a signatory to see if they ascribe to these fair lending practices.
Possible Red Flags
They don’t ask for your credit history: Very rarely will you come across a potential lender who doesn’t ask for your personal and/or credit scores during the application process. They offer you a loan over the phone. It’s illegal for lenders to do business (offer loans or credit and ask you to pay for it) over the phone. Their name is deceivingly similar to that of another lender: Scam lenders may try to confuse applicants by using copy-cat names that sound similar to legitimate online lenders. They tell you to pay via money order or wire transfer: It can be difficult to track and recoup money transferred over a wire or with a money order, which make these preferred payment methods for illegitimate lenders. They tell you to pay an individual: Trustworthy lenders will not ask you to pay an individual person. You should be making payments to the lending institution; even in the case of P2P loans, the payments are done through the lending network provider.
Applying for an Online Business Loan
Personal and business credit ratings Personal and business tax returns for the previous 1 to 2 years Business bank account statements Profit and loss statements Identifying documents like a government issued ID
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