Have questions about online business loans? We’ve answered the most common ones below.
What are online business lenders? How do they differ from banks?
Online business lenders are non-bank entities who offer loans online. Unlike banks, online business lenders offer higher acceptance rates. Online loan firms also offer more flexible terms – however, their interest rates are often higher.
Who may want to use an online business lender?
These days, banks are tightening lending standards. This development has made it harder for small businesses to access the liquidity they need. As such, business owners may want to consider using an online business lender.
Unlike banks, online business lending firms are more willing to approve bad credit loans. This fact makes online lenders an attractive alternative for younger SMEs, as well as those who have suffered hardship.
Are online business lenders always better for you than banks?
No. While online business lenders are a viable alternative for small business owners, they aren’t a silver bullet. For starters, interest rates on private lender loans are almost always higher than those issued by the banks.
On average, a typical bank business loan has an interest rate of 4-6 percent. Meanwhile, online business lenders offer loans with rates that range from 5 to 60 percent. If you can qualify for a bank business loan, we advise taking it.
What are SBA loans? Why could they be the best solution for you if you are eligible?
SBA loans are backed by the Small Business Administration. You don’t get SBA loans directly from this federal agency – you get them from banks or registered online business lenders.
Why is the SBA involved in lending? Banks and private lenders consider small businesses to be a more significant credit risk than larger, established firms. As such, they are hesitant to lend to these enterprises. When they do, they charge interest rates far higher than those reserved for their best clients.
To resolve this situation, the SBA takes on this risk. This makes it possible for small businesses not just to attain loans, but at a reasonable interest rate.
SBA loans come with an interest rate of seven to ten percent – far better than standard non-bank rates.
What can you use an online business loan for?
Online business loans come in various forms – all which can help grow your business. Here are a few examples:
- Construction business loans can help fund the building of a new shop or restaurant.
- Equipment finance loans allow growing businesses to acquire the equipment needed to expand.
- Working capital loans aid businesses with operating costs during times of financial hardship.
Other financing models like invoice factoring, merchant cash advances, and lines of credit also have unique strengths. Learn about them all, and you’ll find the model that works best for you.
What is a cash advance?
Merchant cash advances are lump-sum payments made to a business by a lender. In return, the business agrees to pay the lender a percentage of card sales over a set time frame.
What is a peer-to-peer business loan?
Peer-to-peer business loans (AKA P2P loans) are executed between a borrower and a non-bank party. Lending parties range from individuals to investment funds. P2P lending sites broker these transactions by appropriately matching borrowers to lenders.
For this reason, P2P lending sites are popular funding venues for many startups.
What’s the idea behind comparing online business lenders? Why is this important?
Online lending is an extremely competitive marketplace. By comparing rates, processing times, and reputations, you can choose the lender that’s right for you.
Thanks to business lender comparison sites, you can find relevant loans at the lowest possible rate, all while avoiding shady providers.
What are the average loan conditions for those using online lenders?
The average online business loan comes with the following conditions:
- Loan amounts of $5,000 to $100,000
- An interest rate of at least ten percent
- Loan terms of six months to three years
- Borrower must have been in business for at least 12 months
- A FICO score of 600+
- Minimum $100,000 in annual revenue
Note that these are just averages. Do your research, and you might find a lender with better terms.