As online lending becomes more mainstream, many businesses are turning to small business loans online to meet many of their financing needs.  Fueled by web-based tools that speed up the application process, a new paradigm for evaluating credit worthiness, and the ability to leverage technology to help them determine eligibility (often in under an hour), these lenders may approve business loans that might be overlooked by traditional banks, and can typically do it in much less time than their traditional counterparts.

Many online lenders use technology to evaluate businesses differently from traditional processes. For example, online lenders may access a business’ transactions and cash flow via their bank account’s website or examine other digital data points to analyze business health and creditworthiness. The use of digital information and automated systems can drive much faster credit determinations.

Shorter-Term Online Business Loans

This type of lender provides small businesses with loans that range from three to 24 months. These loans are often used for specific, shorter-term projects such as purchasing inventory, launching marketing campaigns, or general working capital. This type of financing could be a good fit to meet shorter-term business financing needs.

Longer-Term Online Business Loans

This type of lender provides business owners with loans that range from 1-5 years. These loans are well suited for longer-term projects such as major renovations, the opening of a new location, etc.

Application Process

A major benefit of online business loans is the easy and straightforward application process. Easy-to-understand loan applications that can be completed online, over the phone, or via fax are a hallmark of these online lenders.

Although they don’t require the all of the same documentation traditionally needed to apply for a loan at the bank, there are certain documents you should expect to have at your fingertips when completing your application, including:

  • Your Social Security Number
  • Your Business Tax ID
  • Connection to your business bank account, or paper bank statements (for certain lenders)
  • Financial statements may be required (for larger loan sizes)

Many small business borrowers appreciate how quickly their loan application is reviewed. An answer is often available under an hour, and funds are usually deposited in their bank account within a day or two—sometimes as quickly as within 24 hours. A survey conducted in the spring of 2016 of small businesses by the Electronic Transactions Association, identified the top two reasons these businesses chose an online small business loan was the speed to funding (63 percent) and the easy application process (57 percent).

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Rates & Fees

Online business loans tend to have both an origination fee, and a higher interest rate relative to traditional bank loans – other types of fees are possible too. These rates will vary by lender, term, and risk, and may be lower than other options such as merchant cash advances (or credit card advances).

Repayment methods also vary depending on the lender, so make sure to do your research and find the best fit for your business. Many lenders, including online lenders, require a fixed repayment amount on a daily or weekly basis (auto-debited from the business bank account), while others require a traditional monthly payment.

Qualifications and Requirements for Online Business Loans

These both vary from lender to lender, but here are some general guidelines:

  • Minimum Required Time in Business: Usually between 1-2 years
  • Minimum Annual Revenue: $100,000 – $250,000
  • Minimum Personal Credit Score: 500-650
  • Industry: Industry requirements vary by lender, but restricted industries sometimes include financial services, homebuilders, real estate investors etc.

Considerations

As with any type of loan, make sure to do your research and choose your lender carefully. The security, efficiency, and caliber of non-bank lenders can vary.

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