The step-by-step guide to finding a business loan online

When your business is looking to grow, secure cash flow, or invest in something like new equipment, you might want to consider a small business loan.

If this sounds like you, the good news is that you’ve already taken a step in the right direction. Any business considering a business loan should start by researching its options.

Lack of preparation is one of the main reasons businesses are denied when searching. As Mark Palmer, Managing Director of BTIG (an investment firm) puts it, “many companies just don’t know about the application process” and think they can just fill out an application and get approved. But it is not that simple.

Although strict lending standards make it more difficult to obtain business loans, online lenders give business owners more options. So if your bank says no (or you need a loan fast), follow this step-by-step guide to getting a business loan online:

1. Determine exactly why you need a business loan

A lender won’t consider you if you don’t have a legitimate reason to need a loan. Starting a business is not enough.

There are many reasons business owners apply for business loans. You may want to build up a loan for a large future project that will require financing. There could be a lucrative business opportunity that requires capital to capture. Or maybe you need money to hire new employees.

Either way, be prepared to ask yourself some tough questions, such as:

  • Do you absolutely need the money?
  • What if you don’t get it?
  • Are you investing in growth or trying to cover a hole?
  • Do you have sufficient cash to repay the loan?

Although there is never a guarantee of approval, you must be able to explain exactly why you need the money. Be prepared to talk to lenders about it. Be aware that some loan goals (starting a business, acquiring another business, or buying out a partner) are notoriously difficult to finance.

2. See if you meet the criteria

Generally, you and your partners should already have good personal credit and industry experience. Having proof of your ability to repay the loan is crucial. Personal and commercial warranties help a lot. And if you’re personally invested in the business, that’s a good sign.

You will also need put all your documents in order. Again, this will vary with each lender. But you will probably need the following:

  • Bank statements: The financial health of your business will be examined (as well as your personal financial health).
  • Company information: What lenders know how long you’ve been in business, who your customers are, and what your net income is.
  • Legal documents: You need proof of ownership and all appropriate licenses and permits.

3. Choose the right type of loan

You should probably decide what the right business loan looks like before you start actively looking. There are many options, so it’s worth exploring any that apply to you.

Traditional term loan

With a traditional term loan, you can get money up front and pay it back over a fixed term (usually 1-5 years). These loans are granted for a specific business purchase, such as equipment.

Short term loan are similar, but have shorter repayment periods (and higher APRs). Paperwork for short term loans is limited and you can be approved even with bad credit.

Personal loan

Yes, a personal loan can be used for professional purposes. Applying for a personal loan is a good idea when your business does not have a long financial history.

Business line of credit

A business line of credit lets you borrow money only when you need it. They can be a great solution when cash flow is an issue.

Invoice financing

Even if you can’t get a traditional loan from an online lender, you’re out of luck. Invoice financing lets you get cash for invoices before the customer pays (a percentage of the invoice is usually given to the lender).

Business cash advances

Also called a merchant cash advance, these loans provide you with lump sum capital. You repay by donating a portion of your daily credit card sales. The approval process is simpler than for other loans and you don’t need great credit. However, the fees are some, if not the highest in the market.

4. Find a lender

Business loans can range from $2,500 (microloans) to seven figures. Naturally, most financial institutions do not like dealing with small amounts, as they are less profitable and still require the same amount of work.

For smaller loans that would not be approved by traditional banks, consider the following options:

  • Non-profit microlenders: These lenders generally offer very favorable conditions and interest rates. They also work at educate borrowers on the best way to make loans work.
  • Community banks and credit unions: These financial institutions are often very willing to work with small businesses.
  • Other alternative lenders: These include peer-to-peer lending platforms, crowdfunding sites, purchase order financiers, and more. Many of these companies offer fast loan approval. But interest rates are usually higher than bank loans.

The Small Business Association (SBA) is also an option. SBA loans are long-term loans guaranteed by the government. These can be used for many purposes and usually have low interest rates.

You can get a general loan, such as the 7(a) ready. Or you can apply for something to meet your specific needs, such as a CDC/504 loan (for real estate and equipment).

The application process is quite long for SBA loans and you may need to provide collateral. But even if you’ve been turned down by a traditional bank, you can still get SBA approval.

5. Compare loans and choose

In general, loans last from a few days to several weeks. It can take months if you are applying for a loan from the SBA. But the rise of online lenders offering instant loans is changing that.

You will quickly discover that different ohonline lenders quote their rates in different ways. You need a way to compare apples to apples.

Consider the following when reviewing a loan agreement:

  • interest: This is the cost you pay on the loan until it is fully paid off. The interest rate can be 5%, 10%, 15% or more. Keep in mind that it doesn’t factor in other expenses, like set-up fees.
  • Annual Percentage Rate (APR): This number includes the interest rate, as well as the costs associated with obtaining the loan. Remember: the loan with the lowest interest rate is not always the most affordable loan. It’s the APR that tells you more.
  • Costs: These are added to the total borrowing cost of the loan. Examples include application fees, origination fees, closing fees, etc.
  • Factor rate: This type of fixed interest is usually accompanied by cash advances to merchants. You need to multiply your loan principal by your factor rate to determine what you will repay. For example, if you need to borrow $10,000 and your factor rate is 1.25, you will need to repay $12,500.

Whichever option you choose, be sure to look at the annual percentage rates (APR) and terms. Be thorough. Understand the total cost of the loan and its potential impact on your life. And always choose the lowest APR if possible so that there are no surprises.

Get a small business loan online and grow your business

When it comes to finding the right business loan, it pays to be as prepared as possible. Be sure to research loans from all sorts of sources and keep an open mind about how much money you need. Always ask loan officers as many questions as possible before signing a contract.

Remember: it’s your business and you will have to pay the money back. The more research you do and the more precautions you take, the better off you will be in the long run. If you’re diligent, careful and resourceful, you’ll be well on your way to getting the best possible loan for your business.

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