How to Secure the Right Loan for Your Online Business

You spotted a need that’s not being filled, and you’ve jumped at the opportunity. Setting up an online business is in many ways similar to setting up any small business or startup, with many of the same considerations.

First off you need to find a marketable product that answers some sort of market demand. Then you need to get online with an attractive, easy-to-use website that uses search engine optimization to drive traffic to your website. On your site you’ll need to set up an Ecommerce platform and ensure you have the bandwidth, inventory, and manpower to handle demand if and when it starts to pick up.

Loans for online businesses

For an online business you also may need to secure a loan, just like with any small business. Though you’re unlikely to have the same overhead as a brick and mortar store, you’ll still have costs such as paying for inventory, shipping web hosting, tech support, and advertising. All of these costs can add up, and securing a solid small business loans right out the gate should help you stay above water.

While online businesses can often have more trouble receiving a loan with one of the top business loan companies than more traditional businesses, there are still many options available.

First, you need to decide how much money you need. Short-term working capital is a must for most businesses at some point, in order to help them make ends meet during thin times and also to make sure that bills don’t become delinquent.

How big is your online business? Are you selling a product that needs to be manufactured and shipped? If it’s made in house, do you need to rent a workspace? Will you need pricy licensing and certification?

If you can’t borrow money from your loved ones and crowd-funding isn’t an option, there are a number of different routes you can go for loans, and they are similar to the options typically chosen by small businesses and start-ups.


Loan Types

Small business administration (SBA) loans. The government’s Small Business Administration works with banks to provide a variety of loans for different purposes. Their loan and microloan programs give small, short-term loans to small businesses, and their most common program, the General Small Business Loan provides financial help for businesses with special requirements. One drawback though is that it can often be difficult to qualify for a SBA loan, though if you do you will pay a maximum interest rate of 6.5% on a loan of less than $50,000 over less than 7 years, and a maximum rate of 7% if your loan is over seven years.

Term loan. Term loans are a great option for small businesses, and provide fixed interest rates and a set maturity date. On the other hand, they usually require collateral and a long approval process that favors well-established businesses. If you’re just getting up and running, this may be a long shot.

Microloans. These are small, peer-to-peer loans given out by individuals rather than banks. Often times they are collected from a number of small lenders, though they may also be from a single source. These loans are often an answer for people who have had trouble going the more traditional route. This often includes online businesses, which don’t have the brick and mortar infrastructure to convince banks that they mean business. The drawback though is that while they’re usually easier to get, they’re also more expensive, and you can expect to pay a higher interest rate.

Personal loans. These loans require no collateral and lenders decide whether or not to give you a loan based on your credit score. They tend to be easier to receive than term loans, but the tradeoff is often in the form of higher interest rates. Simply put, these “unsecured” loans are seen as a bigger risk for lenders, so the interest they pay is higher. Personal loans have a set monthly payment and interest rate, and while they are not able to seize any collateral, if you are not able to make the (often high) payments then your credit rating will take a hit.

Business line of credit. Line of credit loans provide capital for businesses to meet expenses, serving as a sort of cushion to give you a little bit of breathing room or a little extra cash flow when needed. These loans are flexible – you only pay interest on the money that you borrow and then can take out more and repay the funds as you see fit. In a sense it’s like a credit card that you can access for cash. These loans can have higher interest rates and require putting down collateral though.

Luckily, there are more than enough options these days for securing loans online. Take a look here at some of the top online lending companies, and find the one that’s right for you.


Why go for an online loan?

One of the reasons that people seek out online lenders is simply the greater ease at securing a loan. Banks and other financial institutions view many small businesses as too risky to finance, and if you’re running an online business with no brick and mortar storefront or more traditional revenue stream, you may find yourself out of luck going the normal bank route.

Not only are the loans easier to secure, they tend to come through quicker. Applying can often be as simple as a series of online questionnaires that don’t require meeting with a loan representative or anyone who can hold your hand and walk you through it. Once approved, the loans tend to be issued in a matter of days, not weeks or months like with banks.

Also, with online lending you can compare rates and payment plans on a number of different sites at the same time, allowing you to play the field and find the best deal for you. You could shop around with more traditional lending as well, but it wouldn’t be anywhere near as convenient, and if you’re setting up a small online business, time and convenience is key.

Now, here’s the kicker: Online loans are easier to get, but they are usually more expensive. You’re seen as a bigger risk, and you pay for this assessment. You can expect a significantly higher APR as well as other fees, and often the loans are locked into a specific payment plan that doesn’t allow you to repay early.

Regardless of the higher costs, online lenders provide a reliable, easy way for small businesses to secure loans, including online businesses which may not have the clout of more established storefront businesses. Take a look at some industry leaders below, and you should be able to find one that matches your needs.


Lendio

Lendio​ is a small business loan aggregator that can help match you up with a lender and a payment plan that works for you. It’s not a lending house itself, rather it’s a platform where business owners can place a loan request and receive competing offers from a series of different lenders.

Each loan proposal is listed by Lendio with the pros and cons laid out, so you’re not on your own trying to navigate the world of online loans.

The company has received stellar ratings from the Better Business Bureau and TrustPilot for their services.

Lendio doesn’t require a minimum credit score to qualify for a loan, but you will need to prove you’ve been in business at least 6 months, are up to date on rent and/or mortgage, and have revenue over $10,000/month.

Visit Lendio


Kabbage

Speed is the calling card of Kabbage​. The online lender is ideally suited for small businesses that need money right away and can’t go the traditional lending route. If you have less than ideal credit, Kabbage is also a great option for you. Kabbage offers an easy, simple application and loans of up to $150,000 with payment plans of 6-12 months.

That said, you may run into some of the higher interest rates among the brands reviewed on this page. Kabbage takes risks on businesses needing money quickly, and you pay a premium for that speed.

Visit Kabbage


Fundbox

Fundbox​ is another creative option for small businesses who need money fast for their business needs. Fundbox – which advertises loans given out “as soon as the next business day” – offers invoice financing that can provide you with small loans to cover expenses and cash flow shortages.

When you sign up for Fundbox, it accesses your financial information and whatever banking applications you’re using in order to gain a comprehensive overview of your business and what type of plan would best fit what you’re looking for.

The process is quick and relatively painless, though with Fundbox you will have to submit a background check with your application.

The company doesn’t charge draw fees, bank wire fees, origination fees or maintenance fees. Also, payments are taken directly out of your bank account, so that’s one less thing you’ll have to remember.


LendingTree

If you’ve spent even just a few minutes researching online business loans then chances are you’ve come across LendingTree​. Easily one of the top companies in the industry, LendingTree brings you loan proposals from multiple lenders so you can select which one is best. The company facilitates loans for businesses of all sides, with loans of up to $1 million available.

That doesn’t mean that LendingTree isn’t a top destination for small business owners, who can take advantage of the wide range of loans facilitated by LendingTree, which include SBA loans, long or short term, business lines of credit, working capital loans, equipment financing, and account receivable financing.

LendingTree is also very serious about security and transparency, as well as customer service.


Summary

Lending CompanyTermsLoan AmountAPRMin. Credit Score
Lendio1-5 years  $1K - $2M0% - 30%None
LendingTree3 months - 15 years  $2K - $1M6.79%

None (higher scores receive better rates)

Fundbox12 or 24 week planUp to $100K4.6% and up-
Kabbage6 months or 12 months$2K - $150K

  4% (6 months), 3% (12 months)

-

Conclusion

Though online lending may have still seemed strange or risky just a decade or so ago, today it’s an ever-growing option for more and more businesses and private individuals who can’t rely on the traditional banking route to receive the cash flow they need.

Online businesses can run into many of the same issues that keep small businesses boxed out of the traditional lending system – online businesses tend to not have a long history of operations or a brick and mortar storefront, and often are short of the revenue that financial institutions look for.

As you can see, that’s no longer a deal breaker. And while you will stand to pay more in interest, with online lending houses, any small business – including an online business – can get a loan approved. This frees you up to get back to what really matters – finding a way to make your business take off.

To learn more about any of these business loans companies and more, read our in-depth reviews.

Popular Articles

Top 5 Business Loan Companies