You’ve already taken a great first step if you’re thinking about using an online business loan to meet your funding needs. But how do you pick one of the numerous business loans available for startups online?
Not every business loan will meet your needs or be appropriate for the qualifications of your specific business. You may need to do some shopping to find the perfect fit. And so, we have compiled the best online business loan options for you. Keep reading to learn more.
What Is an Online Business Loan?
Online business loans are debt financing options that allow business startups to secure financing without having to visit a bank. Applying for business loans online is a convenient, accessible, and secure option for business owners, and an increasing number of online business loan options are emerging to meet rising demand.
The following are the best online loans for small businesses:
#1. SBA Lending
The Small Business Administration (SBA) is not a lender, but it is committed to assisting small businesses in obtaining better and larger loans that would not be available elsewhere.
By guaranteeing a portion of the loans, the SBA encourages lenders to work with small businesses. The lender is incentivized to take risks because, if a business defaults on the loan, the lender will not lose all of their money due to the SBA guarantee.
An SBA loan is an excellent option for small businesses with solid credentials and that have been in operation for at least two years. SBA loans have extremely competitive interest rates, comparable to bank loans. However, because these low-interest rates necessitate high personal credit scores and solid business financials, only the best borrowers will be eligible for SBA loans.
If you are one of those well-qualified borrowers, the SBA offers a variety of loan programs and business resources, so the chances are good that you will find an SBA loan that fits your business type and meets your needs.
#2. Traditional Term Loans
The loan product you’re probably most familiar with is a traditional business term loan, also known as a medium-term loan. A medium-term loan provides you with a lump sum of money to finance your business needs, and you repay the lender, plus interest, over a set period of time.
Traditional term loans were previously only available from financial institutions such as your local bank. You may still be able to get a medium-term loan from your bank, but if you don’t, you have online business loan options.
Traditional term loans can meet a wide range of business financing requirements. They are most effective when you have a specific business project in mind and reason to believe that taking out this loan will help your business grow. It is still an option that requires good credit and a few years in business.
#3. Short Term Loans
Short-term loans function similarly to traditional term loans, except they are for a smaller amount and have shorter terms. Short-term loans are ideal for businesses that require immediate funding, such as an unexpected cost or a business opportunity.
When an emergency arises and you require money quickly, a short-term loan is a good option. However, be aware that quick cash comes at a cost. Quick short-term loans are typically expensive.
Short-term loans are among the most easily accessible loan products, with some of the most lenient requirements among online business loans. However, the cost of online short-term loans is a tradeoff for accessibility—lenders must charge higher rates to protect themselves against losses from lending to borrowers with lower credit scores or less time in business.
#4. Business Lines of Credit
Business lines of credit are among the most adaptable products available for online business loans. A business line of credit functions similarly to a more powerful credit card in that borrowers have access to a pool of funds that can be used for business purposes when needed. You will not begin accruing interest or making payments until you use the line of credit, and you will only pay interest on the funds you withdraw.
Because a business line of credit is a type of revolving credit, you will not be required to reapply for the loan. When you repay the full amount, plus interest, the line of credit is reset to its original value, just like a regular credit card.
A line of credit is an excellent online small business loan for companies that need a cash flow cushion. If you have a seasonal business or believe you will need a backup plan in the event of an emergency, a business line of credit can be a great option.
#5. Financing for Equipment
As a small business owner, you most likely have essential equipment such as computers, machinery, or vehicles. Purchasing that equipment is a significant investment, and you are unlikely to have the funds to pay for it out of pocket.
Small business owners can use asset-based loans instead of paying the full cost of equipment upfront. In this case, lenders will be more concerned with the cost of the new piece of equipment and its rate of depreciation than with your personal credit score.
In addition, with equipment financing, the equipment serves as collateral on the loan, which means that if you stop making payments, the lender will seize and liquidate the equipment to recoup their money. Because of the built-in collateral, this type of financing is typically easier to qualify for.
However, keep in mind that if you use equipment financing, you will end up paying more than the equipment itself. So, before you take out this type of online business loan, make sure that the revenue you’ll generate from the equipment outweighs the monthly interest payments.
#6. Invoice Financing
Invoice financing addresses a common business issue: Your customers are slow to pay their invoices, causing your cash flow to suffer. While you wait for your customers to pay, you can sell your unpaid invoices for cash using invoice financing.
Invoice financing companies will typically advance you 85% of the invoice value, with the remaining 15% held in reserve. When your customers pay, the lender returns the 15% minus their fees. They’ll typically charge a 3% processing fee and a 1% factor fee for each week your customers take to pay their invoice.
In comparison to other small business loans, invoice financing is a more expensive way to fund your company. You’re essentially paying to have access to the money now rather than later, and you’ll end up losing a portion of what your customers owe you due to interest rates.
#7. Cash Advances from Merchants
If you’re looking for an online business loan because you need cash quickly, a merchant cash advance could be the solution. These loans can be approved and paid out in as little as one day, with no documentation required.
The lender advances you a lump sum of money, which you will repay by allowing the lender to deduct a fixed percentage of your daily credit and debit card sales until the loan is paid off in full.
One advantage of this online business loan is that, unlike other loan products, slow revenue months are not penalized. Because the lender takes a percentage of your credit card sales, if you make less than one month, the lender simply takes a lower percentage. Lenders, on the other hand, take more from your account when your business is most successful.
The most significant disadvantage is that merchant cash advances are extremely expensive. They are accompanied by some of the highest interest rates available, known as “factor rates.” An MCA calculator can help you figure out how much this online business loan will cost you.
A merchant cash advance may be a good short-term fix for your company’s finances, but be careful not to become trapped in a never-ending cycle of daily payments.
How To Apply For Online Business Loans For Startups
Now that you know what types of online business loans are available for startups, how do you apply? Here are simple steps:
#1. Determine which online business loans you want to pursue.
First and foremost, consider all of the online business loans available to you and your company. Consider your intended use of funds, your company’s qualifications, and how quickly you require the funding.
You should also check customer reviews and see if any of your potential lenders perform hard credit inquiries when you apply.
#2. Examine the requirements for an online business loan.
When you’ve narrowed down your top online business loan options, pay attention to the business loan requirements that each potential lender has for borrowers. Do you meet the minimum requirements of all of the online lenders to which you intend to apply?
Make certain that you have checked all of their boxes before devoting time and energy to applying for the loan. Otherwise, you may end up squandering your time.
#3. Gather your documents for your online business loan application.
Once you’ve decided which online business loans to apply for, begin collecting all of your application materials. While some online lenders will only require your business’s accounting software login, many will request stacks of paperwork, such as business tax returns and business bank statements.
Prepare these documents for your online business loan application.
#4. Fill out and submit your online business loan application.
Finally, once you’ve completed steps one through three and prepared all of the paperwork, all you have to do is submit your online business loan application.
This step is usually as simple as pressing a button with online business loans.
How To Get Financing For A Startup Business?
- Prepare a business plan. As part of the approval process, many business startup loan lenders will request to see a business plan.
- Determine the type of financing you wish to apply for. There are numerous types of business loans and other funding options available. Only you can decide what is best for your startup company.
- Examine your personal and business credit ratings. One of the most common reasons for business loan rejection is poor credit. If you don’t yet have business credit, lenders will look at your personal credit score — so check your credit and work to improve it before applying.
- Compare loan providers. Although receiving a loan offer is exciting, you should still shop around to find the best loan with the lowest rates and fees.
- Collect all necessary documents. Lenders have different requirements, but most want three years of business and/or personal tax returns, copies of business licenses and registrations, financial statements, and business and personal bank statements.
- Submit. You may be able to apply for a business startup loan online and submit all necessary documentation through an online portal or email.
Can I Get A Loan If I Just Started A Business?
Yes, you can. Some online lenders offer capital to small business owners who are less than one year in business.
Can I Get A Loan With A EIN Number?
Yes, in some cases, a lender will only consider your EIN when lending to you rather than your personal credit score.
In Conclusion,
There are numerous options available for online small business loans for startups. However, we have given you the most reliable options so you can feel free to decide which works for you.
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