Online Lending for Small Business
The thought of online lending conjures up images of payday loans, high-interest shark loans, and scams. Merchant cash advances and short-term loans are two products that give the industry a bad name. They do this because they come with double or triple APR rates.
But very high-interest loans with very little qualifications needed are a dying breed. In the past few years, online lending has grown to include low-cost opportunities that can genuinely help small businesses. As a business owner who needs money to grow your firm, know that there are many more lending options today than merchant cash advances or MCAs.
Today’s online lenders have changed the game for small business owners. Now, small businesses can get access to the credit they need easier than ever before. Most of the time, four out of five businesses get denied bank loans. If this happens, they can apply to a lender online for a faster and more flexible product.
Today’s online loans for businesses are more than just a one-size-fits-all product. They go beyond the merchant cash advances and short-term loans.
Let’s look at four different online loan examples which are more affordable than some of the old standby loan products.
Can’t believe that a loan with traditional terms is here? You should join the club! So many business owners actually receive traditional loans online.
These loans are what you might think of when you conceptualize a loan. You apply for money, you are approved for a set sum and you must repay it with interest over a specific time frame.
These types of loans are available online for anywhere from $25,000 to $500,000. The terms range from one year to five years and the interest on them varies between 7 and 30 percent. They may be repaid every day, every week or once a month. The schedule depends on how solid your company is and what your credit history is like.
Get these loans with long terms from lenders like Funding Circle, Bond Street, or Lending Club.
A Business Line of Credit
If you want financing, but you are not looking for a one-off payout that comes with a set repayment schedule, get a business line of credit. These are also available from online lenders.
These are like term loans, but business lines of credit differ in the amount you can borrow, their repayment terms, and their interest rates. They are faster to obtain than any loan from a bank.
These lines of credit are sometimes called revolving loans. Just like a credit card, you can pull out any cash you want when you need to. You only pay the interest on what you take out. This is the best option for you if you are in need of flexible financing.
For these products look to lenders like OnDeck and Kabbage. They offer similar requirements and APRs for short-term products. Lending Club allows you to get good lines of credit with fair APRS but with similar lending terms as traditional loans. Check out Dealstruck or Credit Junction for asset-based lines of credit. These use your inventory or invoices to secure the loan.
Asset-based loans are also available through online lenders. If you need new machinery, equipment financing may be the answer to your financing needs.
The lenders will use whatever equipment you are buying as collateral for the money they loan you. Your loan amount and terms are determined by the equipment price and expected life of the equipment. Interest is typically between 8 and 30 percent and the loans have to be paid back monthly.
It can be cheaper to buy equipment rather than lease it, but financing allows you to free up time to focus on your business and not saving up for that new car or machine. Best of all, you can get your equipment financing online.
Credit Junction and Balboa Capital offer this kind of financing.
This is another type of asset-secured loan. This type of financing allows you to link things between the time you invoiced a customer and the time it takes for them to pay you back. Easily get this type of lending directly from an online lender now. Sync it with your accounting software to simplify record keeping.
Usually, a financing company fronts you 85 percent of the invoices you have. They keep the remaining 15 percent until the client pays you. They get their fees from this money. They also usually charge a fixed fee for the transaction. There is also another percentage set for each week the invoice remains unpaid.
What you pay for amounts to the speed of the transaction, accessing capital and peace of mind. Some financiers work differently. For instance, Fundbox gives you all of your invoices and then bills you for 12 weeks’ worth of fees whether customers pay or not. You may pay this advance back with no penalty. Beside Fundbox, there are other companies like BlueVine that make it easy to apply for invoice financing.
Always Shop Around
The lending world online has grown and become much more diverse. There are so many options for borrowing that you must shop around carefully as a result of online loan growth. Evaluate each business loan to determine what the APRs are as this can cost you thousands.
Check to make sure that you are getting the most affordable product you can obtain.