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Are You Ready for an Online Loan?

Tristan Anwyn

July 06, 2015

Are you considering an online loan for your small business?

Cash flow is a vital part of any business, and sometimes you need a little help. Whether you need to cover start-up costs or fund new equipment, there will likely come a time when your business needs assistance. 

The Small Business Administration (SBA) estimates that more than 80% of small businesses use some sort of financing, with 55% of that being loans.

But could an online loan be right for your business? And what do you need to be aware of?

Online Loans Are an Attractive Option

Small business owners often find that online loans are an attractive option.

If your business doesn't have a good credit rating, is new, or simply doesn't have the collateral that a bank would require, an online loan can help you get round that. 

As the article "Investing With Online Lenders Requires Careful Consideration" points out, online lenders often have a shorter approval process, meaning you can get your money faster. For small businesses in a hurry, this can be a real advantage.

Online Loans: What to Consider 

 Online loans can provide a more flexible and accessible option for your small business as compared to traditional bank loans. However, there are some things to take into account.

Firstly, the regulation of online loans isn't as strict as it is for other types of lending.

That makes it imperative that you do some research into your lender first, and make sure they are up front about any and all costs that you could incur during the term of your loan.

It's also important to be aware that online loans frequently attract a higher rate of interest than bank loans.

Alternative online lenders are willing to take more of a risk on businesses that don't quite make the credit rating, but businesses do pay for that risk in the form of higher interest rates.

How to Find an Online Lender

When looking for an online lender, you naturally want to be sure you make the right choice for your business.

What are some things you should look at before choosing your lender?

• Terms and conditions - make sure you talk to your lender about the exact terms of their loans, their policies and their fees. It's important that you understand exactly what you will be paying and when, along with any potential penalties. Make sure you know what you will pay, and have analyzed how that will affect your business cash flow;
• Interest rates - check what the interest rate on your loan will be, and make sure you can pay back early if you are able to, so you can pay as little interest as possible;
• Reviews and ratings - you can check your lender's rating with the Better Business Bureau. You can also look at online reviews for your lender, and look into whether any business owners in your network have used them, and what their experiences were.

Take the time to find out what each lender will require from you, too.

Every lender will differ, but at the very least you will need a strong business plan, clear financial statements, and a definite idea of how much money you need and why.

It also helps to get your credit score as healthy as you can. Check out your FICO score and do anything you can to settle un-cleared debts.

An online loan can be a viable option for your small business, but do be sure to consider your options carefully and always read the small print.

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