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3 Things to Know about Online Lending

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By Christopher Coble, Esq. on April 23, 2015 3:55 PM

As any small business owner knows, getting easy access to credit can be a challenge. You've already hit up friends and family for a business loan and the time and paperwork involved in applying for a bank loan are just too daunting. But like most challenges these days, the Internet is here to help.

More and more businesses are foregoing traditional bank loans and instead turning to online lenders to meet their cash needs, mostly because access to capital can be quicker and more convenient. But is there a price to pay? Here are three things you should know about online lenders:

1. They May Save You Time

From the ease of applying, the short response time, and the ability to integrate online with your company's online accounting software, online lenders can streamline the application, payment, and repayment process. Most online lender applications can be filled out in a few minutes, although some require more extensive banking and invoicing information. And getting an answer to your application can take hours instead of days or weeks.

And many online lenders can integrate with your existing accounting software. Some can actually see your outstanding invoices and lend money based on income you are owed. While this requires giving the online lender increased access to your books, the ease of getting cash, and paying it back, is worth it to some small business owners.

2. They May Not Save You Money

The typical interest rate of an online loan might be double what a traditional bank would charge, so your online loan could end up being just as expensive as a credit card loan. Because most online lenders aren't regulated like traditional banks, they can skirt some state interest rate laws that regulate the costs of traditional loans. And online loan interest rates may be more variable than a set A.P.R. you may get from a bank.

3. They May Not Give You Money

Even if a higher cost is worth the convenience to you, there's still the matter of getting your loan approved. And while you may getting your answer sooner from an online lender, there's no guarantee it'll be the answer you want. According to one recent report, online lenders approve 39 percent of all loans, making them less likely to approve loans than community, regional, or traditional banks.

Every business is different, and small business owners should take the convenience, cost, and risk into account when considering loans from online lenders.

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