How Online Lending is different from traditional lending for Small Businesses

If your a small business owner, the ability to get approval for a loan is just as important as having the right insurance or a clever accountant. This is because loans can provide a blood infusion in times of rapid growth or unexpected slowdown. 

With online lending becoming a legitamate option for businesses loans, it is important to know the differences of online lending from traditional bank lenders.

Approval Requirements

Online lending for small businesses have more flexible requirements than traditional bankers.

For a traditional bank loan approval, businesses and their owners need to have a good to excellent credit score and be in operation for at least two years. Online lenders, on the other hand, typically require no minimum in business to qualify as long as there is some revenue. Also, online lending will accept the business owners having no credit or bad credit. 

Decision Process

Traditional banks require significantly more paperwork and verification than online lenders. This includes personal and business income tax returns, legal documents and other owner information. Traditional banks will also ask for business financial history, detailed profit/loss statements and verify any assets. 

Alternative online lenders only require that you have a bank account to take into account all the activity of transactions so as to qualify for the loan. 

Funding Time

Depending on the business, traditional banks take anywhere from two weeks to a few months to approve and fund your loan. This can be a stressful wait time for you, especially if the business needs cash right away. 

In comparison, online lending decisions are instant once the lender has all the required information. Once it is approved, funding takes place within a day. 

Interest Rates and Fees

Because online lenders have more lenient standards and faster funding times, interest rates are higher than traditional banks. Standard bank loan interest rates are in the single digits. Online lending rates will be in the double digit range. Online lending also might have higher points or fees upon originating the loan. 

Its important to understand where your business stands in terms of the business lending standards. If your an established large business with lots of assets and and good credit, the lower cost of traditional banks will be a better option. But if your business is newer without good established credit, the cost of alternative lending might outweigh the hassles of the traditional loan process. 

More importantly, by comparing the rates and fees offered by several online lenders, you will allow your business to negotiate the most favorable loan terms and costs. 

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