Getting the Best Online Business Loan: Loan Application Process Demystified
The business loan application process can seem like the beginning of a long and complicated process. However, small businesses have never had more options when it comes to borrowing. Although you can still go to a traditional bank when looking for a loan, you can also find a wide range of online lenders with plenty of loan options they’ve developed especially for small businesses.
But getting a business loan online can feel a little shakier than going with a local bank or credit union. The business loan application process can also be confusing. When you can’t see the institution in person, you may feel uncertain about handing over all of your business financials. The good news is, with some quick research, you can narrow the options down to only the best lenders that best fit your own needs.
First, though, it can help to understand the process so you’ll know what to expect. This guide will walk you through how getting an online business loan works, so you can get the one that’s tailor-made for your company.
Why an Online Business Loan? Why Not Borrow From a Traditional Financial Institution?
While bank loans can work well for many small businesses, online lenders offer convenience and speed. You can apply for financing on your phone; typically, there is less paperwork than with a traditional financial institution; and the process runs much more quickly from filling out the loan application to seeing the money in your bank account.
Also, online lenders typically offer more kinds of funding options. In addition to term loans, online lenders can offer products like short-term loans (e.g. bridge loans for real estate purchases), invoice financing and merchant cash advances, and more.
As with personal loans, personal credit cards, personal mortgages, etc., the amount and kind of business funding you will be able to access depends largely on your personal credit score. This doesn’t mean that bad credit will prevent you from accessing funding, but it may mean that your funding options are somewhat limited. As a side note, a bad credit history is not necessarily a bad credit future: You can start taking steps now to improve your credit score.
Types of Online Lenders That Serve Small Businesses
Although plenty of traditional lending options are still available, online business lending is a rapidly-growing industry. According to the Federal Reserve, online lending to small businesses reached $12 billion in 2017 – a number that’s expected to continue to grow each year. Online lenders are enjoying a growing popularity when it comes to attracting small business borrowers. In fact, S&P Global predicted in 2017 that online lenders will originate $62.84 billion in personal and small business loans by 2021.
With online lenders now entering the fray, businesses have a wide range of options for getting a loan, both online and off. Here are the major players in business lending today:
- Banks (aka traditional financial institutions): This kind of lending generally refers to traditional bank loans, available through a brick-and-mortar bank. Credit unions can also fall into this category.
- Alternative lenders: This term describes non-bank online loan sources. While some banks have online applications, you’re still following the traditional process of getting a loan. Alternative lenders are not banks.
- Peer-to-peer lenders: Also known as marketplace lending, this type of loan passes from one individual to another. Today, marketplace lending is transforming as large institutional investors and hedge funds offer up the money a business needs.
How to Find a Business Loan Online
Whether you use a traditional bank or alternative lender, you can start your application online.
Before you can get started, you’ll need to find a reputable online lender. Shop around to find the one offering the best terms and interest rates. Here are a few lenders to get you started:
- Biz2Credit – At Biz2Credit we offer traditional business loans of $5,000 -$ 5M and a variety of other business lending products such as business lines of credit and merchant cash advances. For our nontraditional products, when you qualify, you’ll get approval within 24 hours and funding within three days.
- BlueVine – BlueVine offers a wide range of business loan types, including invoice factoring, business lines of credit, and SBA loans. Rates and terms vary based on the type of loan, but if you qualify, a business line of credit comes with a 4.8 percent APR and credit lines of up to $250,000.
- Credibly – Like BlueVine, Credibly offers a variety of loan types to those who qualify, including working capital loans of up to $400,000 with a 6- to 18-month term, as well as business expansion loans of up to $250,000 with an 18- or 24-month term.
- Funding Circle – With loans ranging from $25,000 – $500,000, Funding Circle offers rates starting at 4.99 percent per year. You’ll have between six months and five years to repay the loan, with no prepayment penalties, for borrowers who qualify.
What the Online Small Business Loan Application Process is Like
Online lenders pride themselves on their easy application process. Most sites ask basic information, such as your business name and location, plus how much money you need and the financing type you’re requesting. When the lending process is online, accessing your funds is electronic, as well.
Most online lenders promise no “hard credit inquiry,” which refers to the process of pulling your credit report in a way that can hurt your credit score. Don’t assume that means that you won’t have your credit checked. In fact, many of these lenders will conduct what is called a soft credit check, which looks at your report in a way that doesn’t hit your score. However, during the application process, you may also be asked to provide your credit score, so check it yourself before you start.
At Biz2Credit, it takes just seconds to find out if you’re prequalified. Here is how the funding process works:
- Enter your info online. You’ll need to input your personal and basic business information. Be prepared to provide bank statements for your business for the last six months. You may also need to submit tax returns.
- Get loan approval. At Biz2Credit, we usually provide loan approval within 24 hours. Biz2Credit requires that applicants have $10,000 per month or $120,000 per year in gross revenue.
- Receive your offer. The offer will tell you which lending product you’ve been approved for, the amount, and the term.
- Speak to a case manager. The case manager will tell you the reason they were offered the specific product, and you either accept or decline the offer. If you accept, you may be asked provide a few additional pieces of documentation.
- Receive your funding. Once you’ve accepted the offer, you’ll get your funding automatically in your account. If you’ve received a cash-advance product, you’ll get funded within 2-3 business days. If you’ve been approved for a conventional product like a standard business loan, it will take 1-3 weeks to receive the capital.
- Repay. Once the money hits your bank account, you’ll start on the repayment schedule as agreed; you’ll be able to pay online, and even automate your payments. You’ll typically have a term of 5-10 years to pay back conventional loans, while Biz2Credit cash-advance products will usually have to be repaid in 6-24 months.
If you’re interested in obtaining a business loan online, you can easily research the many options and apply in a matter of minutes. If you pay close attention to the terms and requirements of each lender as you’re researching, you’ll be able to find the best deal possible for your own business financing needs.