Online Business Loans

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Online Business Loans

Gerri Detweiler • May 9, 2022

What is an Online Business Loan?

Any lender can offer an online application, but a true online business loan usually refers to one that is processed mostly or fully online. These loans are often faster and more flexible than loans made by banks and credit unions. With both secured and unsecured business loan options, these loans often consider other factors besides a borrower’s credit score to determine eligibility, including revenues, credit card sales, and time in business.

Popular options include business lines of credit or a term loan, which offers a lump sum loan amount. These loans may be used for a variety of purposes including working capital, to grow your business, to buy equipment or even just to smooth out cash flow. Payments will likely be automatically deducted from your business bank account. 

Other options include merchant cash advances (or business cash advances) invoice factoring, equipment leasing or financing and crowdfunding.

Benefits of Online Business Loans

For many physical and online businesses, qualifying for an SBA loan or other financing from a traditional lender isn’t an option, maybe because they have low credit scores or haven’t been in business long enough. In that case, borrowing from an alternative lender could be a viable way to get working capital.

Certain types of financing will be more flexible when it comes to credit requirements; instead they will rely on monthly or annual revenues, outstanding invoices or accounts receivable to establish eligibility.

Another major benefit of online business loans is that you can apply 24/7 and usually get a decision quickly— sometimes in minutes or hours. If your application is approved, online business loans often provide funds quickly, in as little as one day.

Challenges with Online Business Loans

While online financing may open the door to getting much-needed funds for many businesses, there may also be challenges.

Much like traditional bank loans, some online lenders may require specific minimum personal credit scores to establish creditworthiness.

Good business credit scores aren’t typically required, though lenders may check business credit. When they do, they are usually looking for negative information on the business credit report such as tax liens or undisclosed loans. They may also check business credit to learn whether the business has numerous UCC filings. 

Online business loans can, in some cases, be expensive, with high origination fees or rates that top even what business credit cards charge, so it’s important to shop around and consider all options to find the best loan for your situation.

How to Choose the Right Loan For Your Business

There several factors small business owners will want to take into consideration when shopping for a small business loan:

How much do you need to borrow? The loan amount will impact the types of loans you may want to consider. If you need only a few thousand dollars, for example, a microloan is probably a better choice than a bank loan. 

How quickly will you pay it back? Short-term loans include credit lines, cash advances, and invoice factoring for example. Long-term financing options include term loans or equipment financing. 

How much does it cost? Sometimes businesses won’t have access to the lowest cost financing. In that case, it’s important to understand how the cost will impact the cash flow and profitability of the business. What do you qualify for? If you can’t qualify for a loan there’s no use wasting valuable time applying for it.

The Best Online Business Loan Options

No single loan option is best for every business. The right loan will depend on your business needs and qualifications. Here are online loan options to consider:

Lines of credit

Term loans

Business cash advances

Equipment loans

Business credit cards

Best Uses for Online Business Loans:

Before you apply for a term loan or line of credit with online lenders, it’s important to determine what you want to use the financing for. Business needs vary. You might just need an injection of cash to get through a slow period, or one of these other uses:

• Working capital
• Purchasing inventory
• Purchasing equipment
• Refinancing
• Cash flow

Ultimately, the best way to use business funds is to help your business grow. Weigh the cost against the profits you expect to earn as a result to help determine whether it’s worth it to borrow for your business.

How an Online Business Loan is Different from Traditional Loans

Whether an online business loan is right for you depends on your business type and needs. It’s important to understand all of the small business loan options available to your business. Consider these factors before you sign on the digital dotted line of an online loan.

• Cost 
  Traditional business bank loans are seen as the “cream of the crop” loans because they offer some of the lowest rates on loans. Online loans generally don’t usually offer such a low cost. Annual percentage rates (APR) of 25% or more are common, but these loans are usually easier to qualify for than bank loans. (Note that in most cases small business lenders aren’t required to disclose an APR. They may use other terms to describe cost. Use the free small business loan calculators at Nav.com/calculator to understand the cost of financing.) 
• Repayment schedules 
  While there are online business loans offering monthly payments, many require weekly or even daily payments. This can affect your business’s cash flow so you’ll need to know what your repayment schedule is and how it will affect your margins and operations.
• Turnaround time
  Banks are usually much slower than online lenders in processing applications. Getting a loan with the bank could take two months or more, while some online providers can underwrite a loan and approve your business in as little as a day.
• Application process
  Many online lenders will review your business financials. Often they do that by requiring you to link your business bank account so they can review revenues and analyze bank account activity. A business bank account may be required, and you may have trouble qualifying if you are using a personal bank account for your business.

What You Need to Know About Online Business Loans

Before you consider an online loan, keep in mind that any lender can put a business loan application online. Make sure you understand the loan types offered, as well as the terms. 

Generally speaking, online lenders will fall into three categories: 

• Lenders offering their own loan products. They may offer more than one type of loan, but they make the loans themselves. 
• Brokers offering to help business owners find loans from various lenders. 
• Marketplaces offering loans from multiple lenders. With a marketplace, borrowers will be matched to loan options based on their needs and qualifications. 

The one thing to be careful about is fraud. There are scammers who will take advantage of business owners looking for small business loans, especially those with bad credit. Make sure you are dealing with a legitimate small business lender, broker or marketplace.

FAQs

How Quickly Can You Get an Online Business Loan?

True online business loans can often make a decision within hours or days, and fund very quickly after approval. Generally the larger the loan amount, the more due diligence required. Don’t expect to get a bank loan, real estate loan or a loan guaranteed by the US Small Business Administration approved and funded in days. It may easily take a month or more to get approval and funding.

Can I get a loan for an online business?

Yes, there are lenders that offer financing to online businesses, including some that specialize in ecommerce financing. Typically with this type of financing, the revenues of the business will be the most important factor.

How do I get an instant loan to start a business?

It is much harder to get startup financing than it is to get financing for an existing business. If your business is new, you won’t have revenues or much time in business and those are two of the most important factors when it comes to qualifying for business financing. 

You may need to consider options such as business credit cards, which can offer quick decisions. Otherwise you may want to consider crowdfunding, microloans as well as some SBA loans (which are made by individual lenders and guaranteed by the U.S. Small Business Administration). None of these options offer fast decisions, however.

Can I get a loan with my LLC?

Yes, you can get a loan for an LLC. In fact, some lenders prefer to lend to businesses with a formal business structure such as an LLC or S Corporation. There may be a personal credit check, however, depending on the lender’s policies. 

Can I use my EIN to get a loan?

Usually when borrowers ask this question it’s because they don’t want to use their personal credit to qualify and/or they don’t want to sign a personal guarantee. There are some financing options that don’t check personal credit or require a personal guarantee, but the majority of small business lending options require one or both.

Nav’s Verdict: Online Business Loans

Whether you’re unable to qualify for a small business loan or need a faster turnaround time in getting cash in your account, online lenders may be a good small business financing option. Applying usually takes a few minutes, and you can do it from the comfort of home. The convenience can’t be beat. By making timely payments, these loans can also help you build your business credit rating. But the cost may be higher than other options, so be sure to shop around.

Related reading: Best online business loans for bad credit