Different Business Loans to Consider When Applying Online

Navigating different types of business financing isn’t easy. There are an abundant amount of lenders, types of loans, lending jargon, and interest rates to navigate through to get the financing your Different online business loans business needs.

We created a simplified list of business loans to consider as your enterprise looks for funding for its next project, working capital for day-to-day expenses, or a real estate purchase.

Term loans

Small business term loans provide a lump sum loan amount that you repay with interest over a set period. Some online lenders offer short-term loans, with terms of 12 months or less — while others provide long-term loans with longer repayment terms.

Because you can repay term loans over an extended period, they’re useful as working capital or for larger business purposes like real estate improvements or purchases.

SBA loans

Some online lenders offer loans backed by the U.S. Small Business Administration (SBA). From the popular SBA 7(a) loan program to SBA microloans, SBA loans can be used for a wide array of business needs including real estate purchases and operating expenses.

These loans come with relatively low interest rates and favorable terms. The challenging part is getting approved and a potentially long time to get funding. If you have a good credit score, a stable business, and have been in operation for two years or more, this could be a great loan option for you.

Business lines of credit

With a business line of credit, the lender allows you to borrow against a credit limit. You only pay back the funds and interest on the money you borrow. You repay the funds over a defined period, typically monthly or weekly.

A business lines of credit is a more flexible type of financing than term loans. A credit line is a great option for managing cash flow, paying business expenses, refinancing existing debt, covering payroll, and other needs.

Equipment financing

Equipment financing is a small-business loan used to purchase equipment needed to run a business. Equipment loans are typically structured as term loans. The repayment period is based on the expected life of the equipment. For instance, if it will wear out in a decade, the loan term would be ten years. Interest rates for equipment financing can be relatively low and is a much better option than business credit cards with higher interest rates. No collateral or personal guarantee is needed because the equipment serves as the collateral, which means the financing company can seize it if you fail to repay the loan.

Businesses can qualify for equipment financing even with poor or limited credit.

Invoice financing

Invoice financing allows you to borrow money against your outstanding invoices. The lender gives you a percentage of your unpaid invoices upfront as a loan or credit line. Once your customer pays the invoice, you pay the lender back the amount borrowed, plus fees and interest. Fees and interest on invoice financing can be relatively expensive. This financing is good for businesses dealing with cash flow issues because of late payments.

Invoice factoring

With invoice factoring, you sell your outstanding invoices to a factoring company at a discount. The factoring company will collect payments from your customers directly. While invoice factoring is relatively easy to qualify for, it often comes with very high interest rates. Plus, the collection activities could harm customer relationships. Similar to invoice financing, this form of small business borrowing could be an option for companies dealing with cash flow problems caused by accounts receivable issues.

Merchant cash advance (MCA)

An MCA provides a lump sum using a percentage of your future credit card sales plus a fee. A merchant cash advance isn’t technically a loan — instead, the merchant cash advance company buys a portion of your future sales at a discount.

MCAs are fast to fund and easy to qualify for. However, they’re one of the most expensive forms of online small business financing.

What are the pros and cons of online loans?

There are a variety of types of online business loans available to small business owners. Before applying, consider the pros and cons.

Pros of online loans

• Fast funding. Loans from traditional small business financing companies can take weeks or even months to be approved. Some online business loan companies have a fast approval process and can provide capital in as little as 24 hours. And even if you don’t get approved that quickly, most online lenders provide funding within a few days.
• Simplified application process. Online business loan application processes are typically streamlined and require minimal documentation. Some may merely check your creditworthiness to determine eligibility. Banks and credit unions usually require you to supply financial statements, bank records, credit history, a current business plan, cash flow projections, tax returns, and more. Traditional lending companies rely on a manual review system to evaluate loan applications. By contrast, many online lenders leverage artificial intelligence, online information, and technology. This allows them to underwrite loans more quickly and provide faster application decisions. Money could be deposited in your business bank account in as little as one business day.
• Many types of loan options. There are many different types of financing options available through online lenders. You can find one right for you depending on your business size, funding needs, qualifications, and more. Explore your options to find the right loan for your business.
• Less restrictive qualifying requirements than traditional lenders. To get approved for a business bank loan, you’ll need strong credit and to be in business for several years. Online business loan requirements are typically less strict. Online lenders may consider factors other than your personal credit score, time in business, and the financial health of your business when evaluating your application. Some online financing companies may also work with startups, new businesses, or those with bad credit.

Cons of online loans

• Funding options can come with high interest rates. Online business loans are easier to qualify for, which poses a greater risk for lenders. Online lenders cover that risk by charging more in interest than traditional banks.
• Limited personal support. Some online lenders offer phone- and chat-based customer support. However, you will typically complete the entire loan process online. You may never interact with anyone from the lending company except for a few emails. If you’re looking to build a relationship with a lender or have a loan expert answer your questions, an online business loan might not be the best option.

How do I apply for an online business loan?

Although the loan application process varies from lender to lender, you’ll typically be able to apply for an online business loan in 15 minutes or less. Here’s what you need to do:

1. Determine your financing needs. Figure how much business capital you need, how much debt you can afford, and the right loan type for your business.
2. Figure out if you’re likely to qualify. Most lenders will consider your personal credit score, years in business, and annual revenue when reviewing your loan application and determining credit worthiness. Online lenders may also check your business cash flow, financial accounts, and outstanding invoices. They’ll do what’s necessary to ensure you can make monthly payments, including pay interest and the dollars you borrowed.
3. Compare online lenders. Explore your options to find the best provider for your needs. Check out reviews to make sure they’re reputable and provide good service.
4. Submit your application. You should be able to complete and submit your business financing application in minutes. The best lenders have applications that are intuitive and easy to complete. You may also need to upload some financial documents, such as:
   • Business and personal bank statements.
   • Company financial statements, such as a profit and loss statement and balance sheet
   • Business tax returns.
5. Agree to a lien and guarantee. Your lender may secure the loan by taking out a blanket lien on your business assets. You’ll also likely be required to sign a personal guarantee, which means the lender could come after your personal assets if you fail to make loan payments.
6. Receive your funds. Online lenders typically fund business loans in days, sometimes in as little as a single business day.

FAQs About Different Business Loans

1. What are the different types of business loans?

   There are several different types of business loans, including term loans, SBA loans, business lines of credit, invoice financing, equipment financing, peer-to-peer lending, and business credit cards. Each one works differently, has different interest rates, and serves a different purpose.

2. What are the eligibility criteria for securing a business loan?

   Qualifying for a business loan will vary from lender to lender. The general rule of thumb is a proven track record as a business, a good credit score, and valid documentation to support your needs for capital.

3. What is the difference between a secured and unsecured business loan?

   A secured business loan is one that requires collateral. This could be business or personal assets. An unsecured business loan means there isn’t any collateral to support the loan. Generally, unsecured business loan interest rates are higher as there is more risk.

4. How can you compare different business loans online?

   To compare business loans online, find several online lenders that offer the types of small business loans you’re looking for. Look into each lender’s terms and interest rates to find the best offer.