If your business is growing slowly and would benefit from an extra cash infusion, a business loan might be just what the accountant ordered. Business loans can be used for inventory, expansion, equipment and virtually anything else your business needs.
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Recent years have seen a lot of new online business lenders enter the race, which are giving business owners more and more financing options in addition to traditional bank loans and lines of credit. These new nonbank lenders offer opportunities to get a loan quickly at a competitive rate. Read on to learn more about online business loans and if they are the best option for your business.
The Growth of Online Lending
There should be no surprise that with the growth of the internet and online banking that online lending would be close to follow. Over time, banks began to accept loan applications online and eventually began to offer full-service lending through the web.
Because of the reach of online lending without the need for a large network of bank branches, the banks and credit unions now have new competitors in the business lending space, but these lenders are online only. Lenders like Kabbage, Fundation, OnDeck, PayPal Working Capital, Amazon Capital Services and others have entered the space. The multibillion-dollar online industry has revolutionized lending, and it shows no signs of slowing down any time soon.
The Pros & Cons of Bricks-and-Mortar Bank Loans
While online loans may be tempting, it is important to consider every option when borrowing a large sum. Comparison shopping is your friend. There are more than 44 different kinds of business financing — that’s a large ocean to navigate before finding the lowest-cost option that fits your business profile and approval chances. For example, traditional bank loans may require collateral and have strict business credit score qualifications to determine whether you get approved. The process can also often require more paperwork or move slower than an online bank loan.
However, with a traditional bank, you get a level of personal service and guidance not available online. You can meet with a human in person, discuss your options and make a decision with all your cards on the table. If something goes wrong or you want to make changes along the way, you can reach out to that same banker for assistance.
Traditional bank loans come with competitive rates equal to and often better than some online lenders. Rates change regularly, so it is important to shop around for the best rates no matter where you borrow. If a traditional bank offers the best rates, it could be a better option for you than an online lender.
The Benefits of Nonbank Lenders
Nonbank lenders are finance companies that do not follow the traditional bank model of accepting deposits and lending out those funds. Nonbank lenders typically lend from their own funds or look to the financial markets to raise millions or billions of dollars to lend in smaller increments.
Because online lenders do not accept deposits, they are not held to the same (sometimes burdensome) regulations that banks have to follow. Further, their operating costs are much lower as there are no physical bank branches with employees. This gives nontraditional lenders an opportunity to lend at lower rates while still maintaining their own profitability.
But wait, there’s more! Nonbank lenders sometimes use different criteria to lend than traditional banks. Because they look more like tech companies than banks, they are quick and nimble. Some online small business lenders can give instant approval and next-day funding, where a traditional bank loan can take weeks or months to fund and finalize. If quick access to funds is your biggest priority, this is an area where online lenders tend to have the upper hand.
How to Find the Right Lender
Now that you know the difference between traditional banks and online lenders, it is time to find the best lender for you. Start by listing your loan criteria, then do some research online to find the best lender that matches your unique needs. Here are some questions to ask yourself to get started:
- How much money do you need to borrow?
- Do you need an in-person experience or are you comfortable online?
- What are the best interest rates available today?
- What origination fees are you willing to pay?
You can use your free Nav account to view potential lenders and get matched based on your personal and business credit score, years in business and other factors. In the Nav Marketplace, you can see a filtered list of lenders based on your approval odds.
Before You Apply
Whether you are borrowing from a traditional bank or an innovative online lender, your credit score matters. In most cases, the bank will look at both your personal credit and business credit to approve you for a loan.
Nav is the only site that gives you both your personal and business credit scores for free. Your credit score is a major influence in your ability to secure a business loan, so don’t overlook your credit and wait until it is too late.
Ready to see your credit data and start building better business credit? Check Your Personal and Business Credit Scores For Free (No Credit Card Required).