What Are Online Business Loans (and How Do I Apply for One)?

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Like just about every other kind of financial service, small business loans are no longer just the domain of brick-and-mortar banks and have moved into the realm of the internet. That means your small business can get its money faster and easier using online business loans.

However, you’re going to pay a pretty penny for the service. So what are the advantages of getting an online small business loan, and how do you size up the products they’re offering?

Online Lenders Are Filling the Gap

If you’re a small business owner who has tried to get a loan, you already know that it’s a lot harder than it was 10 years ago. Banks tightened up credit after financial crisis of 2008, and while consumer credit has eased up a bit since, business credit has not. There’s always the Small Business Administration, but getting approved for that money is going to take months. So filling in the gap are a new breed of online lenders.

Online lenders can help you with a quick line of credit to pay for everything from merchandise to your payroll. You’re not going to have to wait several months for that approval. In fact, in some cases it can come as quickly as a day or two. You might even get approval within hours.

So, What’s the Catch With Online Loans?

If it sounds too good to be true, it probably is, right? Well, sort of. There are a couple of things you ought to know about online lending.

First, if you have a new business, don’t even think about it. Online lenders are universally only interested in working with established businesses with established – and good – credit. That’s one of the reasons they’re able to provide lending decisions so quickly. Well-established entities can be funded within days, but newer businesses need a pile of paperwork, investigation, and reflection before a lending decision can be reached.

Another issue you’re going to encounter are the interest rates, which tend to be higher than those of brick-and-mortar banks. That’s because they’re taking a greater risk due to their more liberal lending policies. It’s not uncommon for online lenders to offer interest rates in the double digits — more on par with a credit card than, say, a home equity loan.

Which Online Small Business Loan Is Right For You?

Now, there are options for new businesses — but they’re not great. First, you’ve got business credit cards from national issuers or your local bank. Peer-to-peer lender Prosper is willing to look at your personal credit rating and extend you a line of credit you can use for your business, but the approval process takes longer — up to two weeks. Fundbox, meanwhile, is less of a loan than an advance on outstanding invoices.

For brand-new businesses with higher revenues, there’s Street Shares, which requires $100,000 in annual revenue for businesses that are less than a year old, but will fund you in as little as five days. Bluevine is another company that will give you an advance on outstanding invoices, like the aforementioned Fundbox.

For businesses entering their second year, there are more options. OnDeck can get you money the same day, as can Kabbage — but the interest rates are going to be comparable to those on a payday loan. Dealstruck is for large, one-time purchases, but you need to be profitable and put up assets as collateral.

When your business is over two years old, again, your options expand again – and interest rates start to resemble those of more normal loans. SmartBiz, Funding Circle, and Lending Club will make you wait a bit for the money, but offer lower interest rates than the above lenders. Fundation is also for more established businesses, though you’ll need to put up some collateral and they only lend to companies with three or more employees.

So whether you’ve gone to traditional banks with nothing to show for it, or you just need money for your business fast, you’ve certainly got options. Shop around to find the best deal for your small business.

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