An online business loan offers an accessible and fast option for business owners who either don’t qualify or can’t afford to wait to get funding through conventional banks.
Many business owners, however, might be unaware of how online business loans work and how lending marketplaces can be the resource they need to secure funding for their small business.
In this guide, we’ll take a look at the different types of financing options available and how to get a small business loan online.
Overview of the Best Online Business Loans
The best and worst aspect of choosing a small business loan online is that you have options. A lot of them. Here’s an overview of some of the best online business loans and financing options that your business can take advantage of:
The best option for business owners with an established credit score.
Ideal for covering a one-time expense.
Good for profitable businesses that have been operating for at least 2 years.
Business Lines of Credit (LoCs)
Suitable for business owners with revolving capital needs.
Helpful for businesses with cash tied up in unpaid invoices.
Ideal for entrepreneurs needing capital to purchase equipment.
Merchant Cash Advances
A reliable solution for business owners with a poor credit history.
Why Choose Online Business Lenders Over Banks?
There was once a time when banks were the only places you could turn to for financing. Luckily, there are now online alternatives available that can offer funding to businesses that previously could not secure it.
After the financial crisis of the late 2000s, small businesses’ access to bank loans was severely constrained. That access has been slow to open.
Online business lenders offer an alternative. With less-stringent requirements and an emphasis on speed and ease of use, alternative lenders are opening doors to small business financing. In fact, according to data compiled by Statista, a global data business platform, in the 3rd quarter of 2019, the rate of small business loan applicants approved by alternative lenders was 56.5%.
How Online Business Loans Differ from Bank Loans
Understanding the speed, term lengths and adaptable nature of these loans can help you decide whether an online business loan is the right choice for your business.
Online business lenders work with a broad array of business owners—some have been in business for years, while others might be relatively new and have a scant credit history. A lack of credit history or a low credit score can make a potential borrower riskier to lenders, so higher interest rates and annual percentage rates (APRs) will be attached to online small business loans.
When you take out an online loan, you’ll also pay a small premium for the convenience and flexibility the loan provides. Although traditional Small Business Administration (SBA) loans can be secured with interest rates as low as 6% or 7%, online loans typically have APRs above 10%. The added risk that online business lenders are willing to take on and the convenience they provide create costs that make it necessary for them to include these higher rates.
Online bank loans offer a degree of flexibility that traditional banks and credit unions don’t. Only need to borrow a small principal amount? Loans as low as $10,000 are common among online lenders. Want a short repayment term? Online lenders often grant small business loans with terms as short as 3 months. With online business loan companies, you’ll more likely go through a 2-party negotiation that satisfies both sides when it comes to financing as opposed to a “take it or leave it” offer on a loan that you could get from a traditional lender.
Shorter Terms, More Frequent Payments
Online lenders often work with borrowers that might not have a lengthy or strong credit history, which can make lending riskier. Shortening the term to as little as 3 months and requiring weekly or even daily payments minimizes that risk and helps ensure that online business lenders have the ability to recoup their investment.
Free from the same regulations that traditional financiers are strictly held to, online business lenders have the ability to make funding decisions without going through added layers of red tape.
When you apply for a business loan at a bank, the application process is drawn-out and usually involves filling out a huge stack of forms. However, when you apply for a business loan online, the process is digitized and it can be completed in minutes. From there, lenders run your information through proprietary algorithms that dive deeper into the data so online lenders can evaluate risk and make decisions faster.
When you get fast business loans online, you can be able to quickly access the cash you need. Altogether, the process from application to funding could take just a couple of days. Instead of waiting weeks or months for a bank to get back to you, online business loans provide an exceptionally fast turnaround for businesses that need funding now.
Related ArticlesHere’s more info from our experts to help your small business thrive.
Small Business Loans Online and Personal Credit Scores
For those with little business credit history or who are applying for the first time, personal credit scores are sometimes all that online business lenders have to determine your history of repaying debt.
Until your business establishes a credit score of its own, it’s unlikely that your personal score will be left off the table when you’re looking to get a small business loan online. The upside, however, is that you can bolster your business’s chances of getting approved for an online business loan if you pad your personal credit score — for many, this is easier than boosting a business’s credit score. Learn how to understand your credit score. Then check out our video on the 5 C’s of credit — character, capital, capacity, conditions and collateral — and see how these factors impact your loan offering.
Online Business Funding Options
Once you know the requirements for getting a business loan approved, it’s time to find an online business loan that fits your needs, whether you’re seeking an online small business loan for bad credit or a long-term business loan. Below, we’ll go over some of the best online small business loans and financing options.
If you have a long-term project that needs capital financing a term loan is a good option for an online business loan. This is especially true of projects that have an estimated completion date that can correspond with the amortization of the loan. An online business loan provider can offer a term loan with the following conditions:
1-5 year term lengths
Interests rates from 7%
Principal amounts up to $250,000
Approval as fast as 1 day
Business Lines of Credit
If your business could benefit from having revolving capital, we recommend considering a business line of credit (LoC). With a business LoC you can borrow flexibly, meaning that you can borrow only as much as you need up until you reach a predetermined credit limit.
Sometimes businesses can overestimate how much they need to borrow and end up having to foot the bill for interest on capital they didn’t need. To avoid this instead of getting a business loan, apply online for a line of credit.
From a cost-benefit perspective, online business LoCs provide the most bang for your buck. Since you only have to pay interest on the amount you withdraw, you save a lot more money than you would if you received a lump sum for an online business loan that you’d need to repay in full with interest.
We recommend choosing an online business line of credit if you’re a small business owner that needs an undetermined supply of cash. In other words, if you know you need $5,000 up front and potentially a little more (or a lot more) later down the road, then applying for an online business line of credit might be your best bet. Some online business lenders have terms such as the following:
6-month to 2-year term lengths
Interest rates from 8%
Credit limits up to $250,000
Approval as fast as 1 day
Merchant Cash Advance
Merchant cash advances are quickly becoming a common funding source for small business owners, particularly as an alternative to an online business loan for bad credit. Known for their lightning-fast approvals and low credit score requirements, merchant cash advances provide a quick fix if you need cash in a hurry or don’t meet the credit score requirements of other online business funding options.
Once you’re approved for a merchant cash advance, you’ll receive a one-time cash infusion that you’ll repay based on a percentage of your sales revenue, determined by the lender. Merchant cash advances can seem costly to first-time borrowers since payments are taken daily or weekly and are calculated using factor rates. On the bright side, however, merchant cash advances offer many benefits that can be the right choice for many businesses.
Merchant cash advances are recommended for business owners that need an expedient, easy solution for a short-term cash crunch. Here’s a short list of some of the main features of online merchant cash advances offered from online business lenders:
Repayment periods from 3-24 months
Factor rates starting at 1.10
Advance amounts up to $500,000
Businesses with little credit to their name that still want to apply for a commercial loan online and get approved are well-suited for invoice financing. Under this arrangement, sometimes also referred to as accounts receivable financing, online business lenders issue a cash payment to businesses in exchange for their outstanding invoices. Of course, those applying for invoice financing must be invoice-issuing companies (i.e., professional service or B2B industries).
In short, invoice financing allows borrowers to collateralize outstanding invoices for a cash advance. The best part of invoice financing is that it does not accumulate debt that needs to be paid back. Instead, the cash advance is issued at a fraction of what the invoices are worth — typically, 80% to 90% of their value, less a processing fee.
Invoice financing, although not the most affordable method of financing a small business, provides convenience when it comes to getting out of a cash crunch.
After all, if you’re a small business owner, the odds are likely that sooner than later your customers will delay the payment of your invoice — when the inevitable cash flow shortage occurs, invoice financing can provide a quick and convenient solution.
Note that factor fees between 1.0 and 2.0 are often charged weekly until the invoices are paid in full. Here are some invoice financing terms from online business lenders:
Repaid until invoices are paid by customer
Factor rates starting at 1.02
Cash advances up to 80% of receivables
Equipment financing is funding specially purposed for the acquisition of capital-intensive equipment, such as X-ray machines, heavy construction tools and other expensive items. Most online equipment loans have repayment terms between 1 and 5 years, and the equipment is not considered rightfully owned by the borrower until the loan is paid in full.
You can also use online equipment financing to lease machinery, tools and tech for your business. Those in the construction, dental or medical industries often rely on equipment financing to gain a foothold in the market. Equipment financing terms, although diverse, typically conform to the following when working with online lenders in the Fast Capital 360 marketplace:
1-5 year term lengths
Interest rates from 8%
Financing up to 100% of the equipment value
Approvals as fast as 2 days
The Small Business Association (SBA) has an interest in making sure your small business has the capital it needs to succeed. They do not, however, serve as a lender. Instead, they act as a guarantor that reduces the risk lenders undertake to extend capital to small business owners.
Guaranteeing up to 85% of the loan in some cases, the SBA makes it possible for lenders to provide better interest rates and higher amounts of funding to businesses they otherwise would not approve. SBA loans are essential for entrepreneurs and other small businesses that have found trouble qualifying for traditional funding. They can be slower to acquire than other online business loans, but they do offer many flexible terms that can be great for your business:
5-25 year term lengths
Interest rates from 7.25%
Principal amounts from $5,000-$5 million
Approvals as fast as 30 days
Like a regular term loan, a short-term loan can benefit small business owners who need to cover immediate expenses or tide themselves over until the end of a cash crunch.
Short-term loans typically have repayment terms between 3 and 18 months. In return for a short repayment period, the interest rates are generally higher — usually 10% or more.
Banks are generally averse to approving short-term loans, so online lending marketplaces have moved in to fill this demand.
This type of online business loan is among the easiest to access because they can get approved in as little as a day and lenders usually have lenient requirements for approval. Keep in mind that short-term loans do charge higher interest rates compared to longer-term loans.
The criteria some of the best online business lenders use to determine whether to approve financing include:
Time in Business
Online small business loan applicants will be asked to provide a few pieces of information about their business before getting approved. One of the most important aspects of your application is your total time in business. If your business only launched a month ago, your chances of securing a term loan or line of credit will be slim.
To bolster your chances, it’s a good idea to first establish your company and gain a foothold in the market. After a year in business, your company will meet the minimum requirement for some online business loans. After 2 years, you’ll be eligible for approval from a wide variety of online business lenders.
Annual revenue is an important part of securing an online business loan. Unless your business has demonstrated that it can generate revenues and potentially become profitable, both online and conventional lenders will likely consider your application too risky to touch. In most cases, minimum annual revenues of $75,000 are required to qualify.
Typically, conventional creditors look for credit scores of 650 or above. However, some online business lenders will consider applicants with scores as low as 500. In fact, they often have options for borrowers seeking online small business loans for bad credit. The lower the credit score, however, the higher the interest rate will be.
Compare Online Business Loans and Lenders
Now that you have an understanding of what lenders look for in borrowers, it’s time to find the best online business lenders for you. Every company is different, and the emergence of online lending marketplaces makes it easier for you to find the best online business funding options.
Below, we look at the various conditions that several top online business lenders offer on their business loans and financing.
*Note that the following loan conditions were compiled as of October 2020.
Min. Business Req.
$5k – $5m
15% – 78%
3-6 months /$100k annual revenue
Lines of credit, invoice financing
$5k – $500k
6% – 24%
6 months of bank statements required/$120k annual revenue
Equipment financing, working capital loans
$25k – $350k
10% – 25%
2 years in business/$250k annual revenue
$30k – $5m
6.25% – 26.99%
< 2 years is okay for non SBA /$50k annual revenue
Term bank loans, business line of credit, invoice financing, SBA-backed loans
$5k – $250k
13.99% – 63%
1 year/$100k annual income
Term loans, lines of credit
Up to $400k
1.15+ factor rates, interest rates starting at 9.99%
6+ months/$15k+ mth revenue
Lines of credit, working capital and business expansion loans, SBA loans
How to Apply for a Business Loan Online
The first step is to choose the type of loan you desire and then find a company that matches your needs. Once you’ve done that, it’s time to grab all necessary documentation and apply.
Luckily, applying for an online business loan is easy. Once you have all of the required information, you can apply by simply visiting the website of a trusted online business lender and applying through their web portal.