Online business loans are a popular option for financing small businesses. Over the years more small business owners have been turning to online lenders as banks have cut down on loans to smaller businesses.
With the assistance of technology and algorithm, online lenders are able to assess conventional credit standards like cash flow and personal credit score.
Online lenders can also use non-conventional metrics such as online customer reviews and social media interactions. These enable them to offer easier and faster access to capital in comparison to traditional lenders such as credit unions and banks.
However, borrowing costs can be higher when dealing with online business loans.
Qualifying for Online Loans
While borrowing from an online lender is associated with worthwhile benefits, it may not be the best option for everyone. Startup businesses, for example, may not qualify.
New businesses can consider other options for startup financing under such circumstances. If you have been in business for a year or more and are not eligible for a bank loan or require faster access to cash, an online business loan is worth considering.
Comparing Online Financing Options
Online financing options can be compared according to products, namely invoice factoring, lines of credit and term loans. Outlining your business needs and finances can help you customize results when carrying out an online search for a business loan.
A lump sum of money is transferred to you bank account and this is repaid over a specified fixed period. Since you can pay off term loans over an extended period, they are often the preferred choice for long-term growth and larger investments.
Lines of Credit
If you seek flexible financing, lines of credit are good options. Borrowers draw on the line as required up to a specific amount and are only required to pay interest on the borrowed money.
For short-term expenses, lines of credit are preferable. Lines of credit offer the flexibility of taking out money as often as you want to and only when you need it.
Invoice factoring provides a way to access instant cash through borrowing against customer invoices that have not been paid. This is useful for filling cash flow gaps as you wait for your customers to pay.
Companies that sell services and products to other businesses can use this type of financing because they have invoices. The costs of invoice factoring are typically higher than those of lines of credit and term loans.
Personal Credit Scores
- Money is a major concern for any type of small business. While the availability of alternative lending makes it possible for established companies to choose from a range of loan options, entrepreneurs might still experience difficulties when trying to get a loan for their small business startup.
- Startup businesses are regarded as high risks and access to financing can be challenging. Even with big plans and ideas, finding someone who provides financing can be hard when you have not launched your business.
- If you have just started business, your personal finances are crucial and form the basis of borrowing money. This means that a strong credit score will make it much easier for you to qualify for financing.