Online lending means that the bank’s “no” is no longer the last word
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When many think of loans online, they think of loan sharks, payday loans, or scams. They define online loans by early products such as MCAs (Merchant Cash Advances) or Short Term Loans and cancel the industry assuming all products found online have Annual Percentage Rates (APRs) two or even three digits.
But in recent years, the online lending industry has evolved, opening up low-cost opportunities for small business owners. As a business owner who might very well need capital to grow their business, you need to understand that online loans are not just MCAs anymore.
In fact, online loans have radically changed the game of small business lending, giving more business owners access to credit than ever before. When four in five small business owners are denied financing by a bank, they can turn to a faster, more flexible, and more convenient online alternative.
Related: Why Small Businesses Are Turning To Online Lenders
But contrary to what many believe, online business loans come in all shapes and sizes. There are loans beyond expensive short-term loans and cash advances from traders.
Let’s take a look at just four examples of the types of online loans that are much more affordable than the pioneer products in the industry.
Longer term loans.
Surprised to see a traditional term loan here? You would not be alone, but in fact many business owners can secure these classic loans online.
If you’re not familiar, a traditional term loan is probably what you think of when you imagine a loan: you are given a predetermined amount of money and have to pay it back, plus interest, over a set period of time.
Traditional term loans found online are typically between $ 25,000 and $ 500,000, with terms of one to five years and interest rates as low as 7% or as high as 30%. They can have daily, weekly or monthly payment schedules. It all depends on the financial strength of your business and your credit history.
Related: Avoid These 5 Common Small Business Financing Mistakes
These longer term loans are offered by lenders such as Bond Street, Funding Circle and Lending Club.
Business line of credit.
If you are looking for financing but a lump sum amount tied to a fixed repayment period is not what you need, then you should consider a business line of credit, also available online.
Like term loans, lines of credit vary in loan size, repayment terms, and interest rates, but they are both much faster to secure online than with a bank.
Lines of credit are often called “revolving” because, like with a credit card, you can withdraw the money you need, when you need it – and only pay interest on what you withdraw. A business line of credit may be the ideal solution if you are looking for flexible financing.
Lenders like OnDeck and Kabbage offer lines of credit with similar eligibility conditions (and APRs) to short-term loans, while Lending Club offers a line of credit with similar eligibility conditions (and APRs). to those of the longer term loans described above. Other lenders, like Dealstruck or Credit Junction, offer asset-based lines of credit using inventory or bills to secure the line.
Financing of equipment.
The online lending industry also helps business owners get asset loans. For the business owner who needs new machinery, equipment financing could be the answer.
A lender will use this piece of equipment that you buy as collateral for the loan, so the amount and term of your loan is tied to the price and expected life of the asset. The interest rates are between 8 and 30% and these loans usually come with monthly repayments.
Although it is cheaper to buy equipment directly than to pay interest on it, financing the equipment saves you the hassle of saving money and wasting time. not have that new car, oven, or exercise machine. And the best part? All of this can be done online.
Related: When and How to Rent Equipment
Lenders like Credit Junction or Balboa Capital offer this type of financing.
Another type of asset-based loan, invoice financing allows you to bridge the gap between a customer’s billing and reimbursement. Yes, you can get invoice financing from an online lender… and they can even sync with your accounting software to provide a seamless experience.
Most of the time, a bill finance lender will initiate 85% of the bills you select, withholding the remaining 15% until your customer pays – and taking their charges directly from that money. They usually charge a flat fee for the transaction (say 3%) and then a fixed percentage per overdue week. You pay the price for speed, access to capital, and peace of mind. However, that’s not the only way invoice financing works – some lenders like Fundbox will pay you 100 percent of your bills and charge you a fee for 12 weeks and that’s it (it doesn’t matter if your client has paid. ). You can repay the advance early without any penalty.
Along with Fundbox, BlueVine is another invoice finance company that is easy to apply to online.
The importance of shopping.
Since the world of online lending has grown, it has also diversified. For this reason, it is more important than ever to shop around when evaluating business loans online. The difference in APR between some online products could translate into thousands of dollars for your business. You need to make sure that you are certain that you have found the most affordable product that your business can qualify for.