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If you've ever tried to get a bank loan for your small business, you know it can be a lengthy process. Direct online lenders can make it easier with a simple, online application process and faster loan approval. Some of the best online business loans include loans from OnDeck, Balboa Capital, ForwardLine and CAN Capital.
Why is the online business loan process so much faster than that of a traditional bank? Online lenders use technology to assess applicants' qualifications rapidly, with some even incorporating artificial intelligence in the process. Often, they also have looser requirements for lending, making them a potential source of financing for businesses that don't have enough history or revenues to qualify for a traditional bank loan. For example, you might be able to get approved for an online loan after only six months in business or with a credit score of 600 or even lower.
Keep reading to learn more about online business loans, including their pros and cons and some of the best online lenders.
Top Online Business Loans
Here are some of the most popular direct online business lenders to consider.
Balboa Capital offers short-term business loans for amounts ranging from $5,000 to $250,000. There's no collateral required, and loans are available with terms of three to 24 months. The loans can be used for any business purpose.
To qualify for a business loan from Balboa Capital, you must have been in business for at least one year, have annual sales of $300,000 or more, and have a "decent" credit score. The company considers both your business and personal credit scores, which can be helpful in creating a fuller picture of your overall creditworthiness. Simply fill out the online application, and the company's website says you can expect to get a quote and qualify in an hour. Depending on the loan amount requested, your loan may be funded the same day.
Loans are repaid either daily or weekly through an automated clearing house (ACH) transfer from your business bank account. You can also pay off your entire loan at any time without a prepayment penalty.
OnDeck offers short-term loans of $5,000 to $250,000 and repayment periods of up to 18 months. Payments are fixed, so there are no surprises, and are made automatically either daily or weekly via withdrawals from your business bank account. You can apply either online or by phone and potentially receive financing the same day for loans of up to $100,000.
To qualify for a short-term loan from OnDeck, you must have been in business for at least one year and have a business bank account, a personal FICO® Score☉ of at least 600 and annual revenues of at least $100,000.
If you qualify for OnDeck's 100% Prepayment Benefit option, you can pay your loan off early and have all remaining interest waived with no penalty or fee. However, loans with the Prepayment Benefit have a higher interest rate. If you're not sure whether this is worth the cost, OnDeck's SMART Box® Capital Comparison Tool can help you break down loan costs and evaluate your options.
Need another loan later on? Current OnDeck customers who take on a new OnDeck small business loan can have the remaining interest on outstanding loans waived or can receive an origination fee as low as 0% on the new loan.
If your personal credit score is only fair and your annual revenues are small, ForwardLine might be able to help. This direct lender, which has been around since 2003, offers short-term loans of up to $150,000 for six to 15 months; typically, loan amounts are 10% of a business's annual revenue. Loans are repaid daily or weekly through automatic ACH withdrawals.
To qualify for a ForwardLine loan, you'll need to have been in business for at least two years, have a FICO® Score of 500 or better and have annual revenues of $50,000 or more. You'll also be asked to provide at least three months' worth of business bank account statements. Simply complete a quick online application, submit the bank account statements and you could get financing the next business day.
If you don't qualify, ForwardLine will refer you to its network of partner lenders, which could help you find financing elsewhere.
In business for over 20 years, CAN Capital offers short-term loans of $2,500 to $250,000 with terms of six to 18 months. After you apply, CAN Capital reviews your information and if you're prequalified, you can select the loan amount and term length you want. Funds can be deposited as fast as the next business day.
Payments are fixed and are made daily or weekly via automated ACH deduction from your business bank account. After the first 90 days, you may be eligible for a prepayment discount.
To qualify for a CAN Capital loan, you must have been in business for at least six months, have at least $150,000 in gross revenues, have less than $175,000 in outstanding tax liens or judgements, and have no personal or business bankruptcy that has not been discharged for at least a year.
Pros and Cons of Online Business Loans
Online business loans offer a lot of benefits for small business owners seeking money in a hurry, but there are also some downsides to be aware of.
- Quick access to cash: Many online lenders can fund your loan the next business day or even the same day if you are approved.
- Fast approval process: Because they don't require as much documentation as banks do and use advanced technology to assess loan applications, you will usually get an answer from an online lender within a day.
- Access to smaller business loans: It can be hard to get small loans from a bank—and anything under $350,000 is considered small in the world of Small Business Administration-guaranteed loans.
- More flexibility with credit score: Online lenders often cater to small businesses that have fair to poor credit scores or minimal credit history and may not qualify for bank loans.
- More flexibility with loan use: Online lenders typically place no restrictions on what the loan can be used for.
- Lower loan limits: Loans from online lenders tend to top out at around $250,000. If you're looking for more than that, you'll be more likely to find it at a traditional lender.
- Higher interest rates: The tradeoff for the speed, ease and flexibility of online loans is often higher interest rates than business loans from traditional lenders.
- More frequent payments: While traditional business loans are paid back in monthly installments, online lenders may require weekly or even daily payments drawn from your business bank account.
- Less flexibility with loan use: Traditional lenders generally want to know what you will use your loan for and may have restrictions on how you can use it. For example, each type of SBA loan is limited to very specific uses.
Since the terms of any online loan will vary depending on your qualifications, you can't always get complete details about a loan from the lender's website. When considering any online business loan, be sure to find out about interest rates, origination fees and other fees; prepayment penalties; and whether any personal guarantee or lien on your business is required.
Also ask whether the lender reports your payment information to the three major business credit bureaus: Experian, Dun & Bradstreet and Equifax. If they do, making on-time loan payments can help to build a business credit history and improve your business credit score, which can make it easier to get a loan in the future.
Alternatives to Business Loans
When your small business needs financing in a pinch, a business loan isn't your only option. Here are some financing alternatives that can provide the cash you need.
Business line of credit: A small business line of credit is a kind of revolving credit. As with a credit card, the lender assigns you a credit limit. When you need money, you can draw from the credit line, up to your limit. You don't start repaying the line of credit until you actually draw funds from it. As you pay down the credit line, the funds become available for you to use again. You can carry a balance as long as you make your minimum monthly payment, giving you the flexibility to make smaller payments when business is slow and bigger payments when business is good. Just be aware that any unpaid balance will accrue interest.
Invoice financing: If you have business-to-business customers that take a long time to pay, such as corporate or government clients, one option is selling your outstanding invoices to an invoice financing company. The financing company pays you a percentage of the invoice value (generally about 85%). After the full payment is collected from the customer, you'll receive the rest of the invoice amount, minus the fee the financing company charges.
Merchant cash advance: Businesses that take most of their payments by credit or debit card may be able to use a merchant cash advance. The lender advances you money based on your projected future payment card sales. You repay the advance via daily or weekly payments pulled from your payment card sales. Although merchant cash advances can be helpful in an emergency, high interest rates make it a very expensive type of financing.
Equipment financing: As the name implies, equipment financing is used to pay for new business equipment. The equipment itself serves as collateral for the loan, much like an auto loan. You can find equipment loans offered by online lenders, specialized equipment financing companies, and equipment manufacturers or resellers.
Business credit card: You can use business credit cards to pay for equipment, inventory, material or business services. Many business credit cards also offer valuable perks like rewards or cash back on products and services businesses frequently buy. If you use a business credit card to get a cash advance, however, you're using one of the costliest forms of business financing, as the cash advance annual percentage rate (APR) is generally much higher than the purchase APR.
Improve Your Credit Score to Get an Online Loan
Online lenders generally consider your personal credit score as well as your business finances when deciding whether to approve your loan request. To find out what your personal credit score is, get a free credit score from Experian.
You may be able to get an online loan with a personal FICO® Score as low as 500, but because this is considered a poor credit score, you'll likely pay a relatively high interest rate for the money you borrow. Improving your personal credit score can help you qualify for more favorable credit terms in both your business and personal life.
You can improve your personal credit score by paying down debt, paying your bills on time and maintaining low or no balances on your credit cards. To build your business credit score, get a federal Employer Identification Number (EIN), open business bank accounts, pay your bills on time and make sure your suppliers, vendors and business credit cards report your payments to the business credit bureaus.