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Online Business Loans
Online lenders offer business loans that can be fast and easy to apply for. Loan decisions and funding can take place within hours or just a few days. Online business loans offer many advantages but they do come at a cost.
Online business loan details
- Loan Amounts: $5,000 – $500,000+
- Interest rates: 7% – 99% APR
- Repayment terms: 3 months – 20 years
- Turnaround time: As fast as 2 business days
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.
Online business loan pros and cons
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.
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.
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.
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Team Nav
Nav is a technology company building the leading small business credit platform. What started as a way for small business owners to easily explore funding has become a destination for over 350,000 small businesses to get everything they need to understand the full picture of where their business's credit stands, and how it can impact their business financial health profile.
