Online business loans are an excellent option when you are raising funds for a business project. Many small and medium enterprises in the United States with insufficient capital rely on these loans to jumpstart or expand their business. The amount you can borrow may range from $5,000 to $5 million, depending on your chosen lender and your qualifications.
Like most people, you’re probably reading this article because you want to grow or maintain your business but lack the cash flow to do so. Most business owners often decide to turn to banks when they need more capital. In this article, you’ll learn why you should choose an online business loan and how to apply for one.
Online Business Loans vs Traditional Bank Loans
Did you know that in 2019, around 49 percent of small businesses that needed financing applied through a large bank?
The problem with banks, especially the large ones, is that they usually have strict loan application criteria. Not only do they require a high credit score minimum, but their conditions aren’t that flexible. Worse, most banks only approve only about 27 percent of business loan applications.
Thankfully, there are reliable alternative lending options if your business doesn’t qualify for a bank loan. You can find many of them online. They are not only easier to apply for, but their conditions are also more flexible.
Online Business Loan Marketplaces
You can choose to borrow directly from an online lender, or you can go to a loan marketplace. The latter is a platform that matches borrowers with the right lender. Depending on your chosen loan marketplace, the lender you’ll find may either be a financial institution or a private individual.
One great thing about online business loan marketplaces is that their networks only consist of reputable lenders. Because these lends are pre-screened, you lower the chances of getting ripped off by scams.
Business loan marketplaces, such as Loan Builder, Lendio, and Funding Circle, can process your application in less than 10 minutes. Once you get approved, you can receive the money within several days, sometimes even within 24 hours. Additionally, they have more loan products than what banks typically offer.
How Do You Apply for an Online Business Loan?
Getting approved for a business loan online depends on several factors:
- How long your business has been in operation
- Your credit score
- Loan purpose
Step 1: Prepare Your Business Documents
Creditors need to gauge your business’ current state to determine your capacity to pay off the loan. They can do this by looking into some of your business documents:
- Mortgage statements (if you own the property)
- Lease agreement (if you rent)
- Bank statements from the past three months
- Most recent business tax return (for loans over $100,000)
- Updated government-issued picture ID for all owners
Step 2: Know Your FICO Score
Online lenders like OnDeck and BlueVine are very particular with FICO scores when evaluating business loan applications. They usually require a score of at least 600. Contact any of the three major consumer credit bureaus — TransUnion, Equifax, and Experian — and ask for your FICO score. You are entitled to one free credit report every 12 months. Some credit card issuers have access to this information. Consider requesting through them as well.
Step 3: Choose a Lender
Another reason to have all necessary business documents ready before applying for a loan is so that you can have an idea which type of loan will best fit your business. For instance, if your monthly revenue is $13,000, you may qualify for a BlueVine loan since they require at least $10,000. However, you may not be eligible for a Credibly loan because they need $15,000+ average monthly bank deposits.
Make a list of all the best online business loan providers out there and look for loans you think you qualify for. Financial experts like LendingBuilder provide loan comparisons and reviews that you can use to narrow down your options.
You may also want to check if a lending company restricts certain types of businesses from applying. For instance, OnDeck declines applications for gambling services, drug dispensaries, firearms, and adult entertainment.
Step 4: Choose a Loan Type and Apply
Each lending platform offers a range of business loan programs, including SBA loans, short-term loans, business lines of credit, and more. Each loan type has a different set of features and value range. Pick one that can provide the funding you need and comes with favorable terms and conditions. When you’re ready, apply for the loan by filling out the online form. Submit all files requested by the lender and wait for them to respond.
Get the Capital You Need to Grow Your Business
The flexibility of online business loan applications attracts SMEs from across different industries. With more online lenders and brokers competing every year, expect more varieties of business loans to be available in the future.
If there is a downside to having so many business loan options, it is now more challenging to choose the best one for your specific financing needs. You don’t have to worry because financial websites like LendingBuilder can provide resources to help you find the right loan for your needs today.