Online Business Loans in 2015

Small business owners continued to turn to online small business lenders in 2015. Here are five reasons:

  1. Many traditional lenders (like banks) are still reluctant to offer financing to the smallest small businesses
  2. The application and approval process is more streamlined for the borrower with online lenders
  3. Online lenders are now considered more main stream and have become the first-choice option for many loan purposes
  4. Borrowers who might not qualify at the bank are able to get financing online
  5. The cost to qualified borrowers is coming down as access increases

Small Business Attitudes Are Changing

When most of us think of small businesses, we think of the mechanic that fixes our car, the restaurant where we eat out on Friday night, along with other local merchants. Even though business is improving since the recession, it hasn’t gotten much easier for these businesses to secure financing through traditional means. Fortunately, savvy entrepreneurs have recognized the void left by (what certainly feels like) a mass exodus of many of the lenders business owners previously relied on to fill short-term working capital needs and meet growth and expansion demands.

In much the same way their bigger siblings rely on lines of credit and other financing to manage their day-to-day business needs and to meet expansion demands, small businesses rely on financing for the same use-cases. For those who can no longer turn to traditional sources of financing, their attitudes about what is often called “alternative financing” and how they evaluate credit products has changed—this is particularly true for business owners trying to meet short-term financing needs.

What’s more, even highly qualified borrowers, who would find success at the bank, are turning to online lenders when they need answers and capital quickly. Some loan purposes just don’t give them the luxury of several weeks to wait for an answer on their loan application—they need to access capital quickly and need an answer on their loan application now. Fortunately, there are online lenders that can give them answers as quickly as within a few minutes.

Choosing the Right Online Lender for Your Situation is Important

Like any industry, some players are better than others. And, like banks, no two online lenders offer exactly the same rates and terms. Shopping for the right loan, whether from a traditional bank or an online lender, is an important step to finding the right loan to meet your loan purpose. Here are four steps to help you ensure you have the right lender:

  1. Ask for referrals from past customers
  2. See what their rating is with the Better Business Bureau
  3. Make sure you understand all the costs associated with your loan—both the rate and the total cost of the loan
  4. Make sure you understand the loan terms being offered and ensure they match your loan purpose (short-term financing for short-term needs and long-term financing to meet long-term needs)

Become a Savvy Borrower

The recent influx of options within the small business lending landscape is making more capital available than ever before. However, borrowers need to become savvier in how they evaluate those options to ensure they make the right choices. Don’t be afraid to dive deeper to make sure you understand the pros and cons of any potential small business loan so that you can make an informed decision.

When looking for a business loan, it’s important to ask these four questions:

  1. What is my loan purpose? This will not only help you determine whether or not the cost of the loan and the loan term make sense, it will point you in the direction of the lenders who are best able to help you meet your needs.
  2. How much money do I really need? Your needed loan amount will also help you determine where to look. For example, many banks would prefer to avoid making a $50,000 loan in favor of a $500,000 loan. What’s more, if you know exactly what you need, it tells any potential lender that you’re taking a thoughtful approach to borrowing to meet a specific need, rather than looking for a blank check.
  3. What does my credit profile look like? Because different lenders have different credit criteria they use to evaluate a potential borrower, understanding the strength of your business and personal credit profiles will help you avoid wasting time interviewing lenders where you likely won’t qualify—and will help you determine where your profile is weak so you can make improvements.
  4. Do I have the information I need to apply? Traditional lenders will sometimes require a different set of information when you apply than an online lender. For example, a business plan might be necessary at the bank, but likely won’t be a requirement with an online lender. Before you apply, make sure you have the right documents and information at your fingertips.

Online lenders are definitely making more capital available to business owners, and while it’s not necessary that a business owner become a financing expert, the new landscape does require that business owners do their homework and become experts at financing their business needs.