The concept of applying for and getting loans online is not new, having been around now for several years. However, that said, it is becoming more common than ever especially for small businesses to turn to alternative and /or online lenders for loans, as bank criteria and restrictions are becoming increasingly difficult to navigate. The number of online lenders has accordingly grown by leaps and bounds in the past few years. And so, searching for and evaluating these lenders can take some time; it is, however, critical to do your homework and ensure you choose the lender and online loan that is going to be the right fit for your company. In this article, we take a look at what is required when it comes to applying for and getting online loans. We will also look at some of the benefits and drawbacks associated with these types of loans.
As with applying for a traditional bank loan, going for online loans will require you to submit certain forms and documents so that the underwriter can get an accurate and timely picture of where your business stands financially. To this end, you may be asked to submit tax returns, financials, social security or EIN as well as potentially a business plan, depending on what type of online loan you are seeking and how much money you require. The good thing about online loans versus more traditional business financing is that the process is super quick, with some people receiving a decision and the funding in just a couple of days.
Some Pros and Cons of Online Loans
With online loans, the process could not be faster or easier. And that is precisely the point…Online lenders are looking to streamline how businesses get money. They are not making you wait weeks or months, but rather they can give you a decision sometimes even the same day. This is a huge game-changer. Especially now, especially when so many small businesses across the country are struggling and need additional capital sooner rather than later. So what are the pros of working with an alternative lender to get an online loan:
- Faster processing times as well as much faster funding times than your experience with more traditional lending institutions. Some clients get funded in 1-2 days.
- Criteria that are less stringent. You don’t necessarily need a 700 or better FICO score to qualify when it comes to online loans. They look at the entire picture and base their decision on several factors.
- More favorable rates and service fees. With the rise in popularity of online lending, and the number of customers gravitating toward this form of financing, these lenders can offer lower rates in some instances and smaller fees attached to the loans. Plus, because of the nature of online lenders, they don’t necessarily have the enormous overhead that traditional banks have which also helps to keep loan costs down.
- You may not need collateral. With many online loans, the financing is unsecured so you will not have to pledge assets to qualify. This way, if for some reason you do default, your home or car or retirement fund is not at risk of being seized for failure to pay.
Some of the cons associated with online loans:
- The reliability of the lender. This is very important. When searching for online loans, you want to carefully evaluate the lender and their history. Some of the more “fly by night” lending companies could potentially run into issues and even go out of business.
- Some products may have higher rates. While this is not the case across the board, depending on the product/loan type there may be higher interest rates associated than you’d get with a traditional bank.
What about Payday Loans?
The concept of a “payday loan” is also one that has been around for some time. These are different than other types of online loans. What a payday loan represents is a high-priced, short-term loan that can potentially bring you even more problems by way of debt.
There are a few key indicators that a loan product you’ve found online could be a payday loan. For example, if the loan service stipulates that there is no credit check required, this could be a red flag. Without running a credit check, the organization lending the money is taking a major risk—the cost of the loan will subsequently reflect this. A payday loan will also generally have very high-interest rates attached. Even credit cards tend to come in under the interest rate of a payday loan. So just keep in mind, there are other options out there. And payday loans will also have significantly shorter terms than other types of loans. Some need to be paid off within a month. Many people simply cannot afford to do this and thus they end up getting even deeper into debt and further behind.
Finally, some payday loan lenders will demand an upfront payment. Yes, fees are commonly attached to loans, even online loans, but there is a difference between a loan fee and an upfront payment before receiving the loan funds. In fact, in some cases, an advanced payment may signal an outright scam.
Working with online lenders is becoming more and more the norm for smaller businesses. You want to be certain though that the company you choose to work with is reputable, has a solid track record, and is transparent in its policies and processes.
First Union Lending is here to help! We work with small companies across the country offering fast and flexible loan programs. We get our clients the cash they need in as little as two days—yes, we do work that quickly. With short-term loans, lines of credit, and merchant cash advances among other forms of funding, we have the resources you need. Call today!