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A Beginners Guide to Online Lending Companies

Running a business requires capital. Even if you bootstrap initially, you will find yourself looking for funding options to preserve your capital. In most cases, small businesses turn to small business loans for help.

It’s common knowledge that banks offer the best rates for business loans. But bank loans are also one of the most difficult to qualify for. On the other hand, loans from alternative lenders may be easier to qualify for. It’s for that reason that many businesses, especially those with poor credit and short history, often pick them over banks.

But before you apply for a loan from online lending companies, here’s everything you need to know about them.

What are Online Lending Companies?

Online lending companies offer alternative funding options for businesses having difficulty getting funding from the bank. Specifically, they provide easy-to-qualify funding options for companies that lack credit and business history (both of which banks are particular about). They’re called online lenders because the application takes place online, over the Internet.

Unlike banks, online lenders typically come with high rates and expensive fees. This is their way of mitigating the risk of working with subprime borrowers. However, this could also be a disadvantage for businesses that can’t afford such high fees. On the upside, they don’t require as much paperwork as banks, and the approval process can be as quick as 24 hours.

As for the eligibility of online loans, it’s typically less strict than banks. Some may work with businesses with a credit score as low as 500, six months of business operation, and a revenue of $10,000. Lenders may have varying qualifications. While others may work with businesses with poor credit scores, others may not. Be sure to ask the lender about their eligibility criteria first.

Types of Loans Online Lenders Offer

Online lenders offer the same loans as banks do. But their loan products typically come with lower loan amounts than traditional lenders. They also offer some financing options that banks don’t.

In general, online lenders offer the following loan options:

  • Line of Credit
  • SBA Loans
  • Term Loans
  • Invoice Factoring
  • Inventory Factoring
  • Equipment Financing
  • Working Capital Loans
  • Purchase Order Financing
  • Merchant Cash Advances

Note that some loans might be tailored to address a specific need, like equipment or purchase orders. However, some loans may also offer flexibility, so businesses can use them to address any specific business need. Before applying for a loan, it might be helpful to assess your business’s current needs first.

How to Find the Right Online Lending Company?

If you’re thinking of getting a loan from online lenders, you must do thorough research on potential lenders. This will help you know the process more and avoid getting scammed.

Fortunately, the internet gives you the tools you need to evaluate the lender’s reputation and credibility.

Here are some tips to keep in mind when choosing an online lender:

1. Check for a Physical Address

Even though the online lender handles applications online, you should still check or look for a physical address. Being able to visit the office personally can make it quicker for you to resolve an issue. Once you find the address, you can easily verify it through a quick Google search. You might also uncover some news or reviews about the business, which will help you finalize your decisions.

2. Check Feedback and Reviews

Reviews and feedback are important factors to consider when evaluating the credibility of the online financing company. You’ll want to work with a company that offers excellent customer service to clients and one that offers a smooth application process.

When reading feedback and reviews, don’t limit yourself to the company’s website. Visit third-party review companies to get more insight into how the online lender works. People are likely to post dissatisfaction on third-party websites and warn others. The more you know about the company, the better.

3. Check third-party verifications on the Financing Company

One of the most reliable ways to check its credibility is by checking its rating on the Better Business Bureau or BBB. The BBB is a non-profit organization that grades companies according to their trustworthiness. The grades are expressed in letters that range from A+ (highest) to F (lowest). The Customer Finance Protection Program can also show reviews and other information associated with a certain online lender’s services.

4. Lookout for Red Flags

Another way to prevent predatory lending is to look out for red flags. Sometimes, these red flags aren’t so obvious, so the borrower won’t even notice that they’re biting into a scam. Here are the most common:

Pressuring you to apply for the loan and convincing you to get more money than you need.

Letting you sign documents without going over the contents with you or not giving concrete answers to your questions

  • Telling you to sign unfilled forms and saying they’ll fill them out for you later
  • Refusing to let you have a copy of the documents you signed
  • Constantly changing the loan terms without informing you beforehand or explaining the changes.

5. Evaluate the loan terms they offer

Some online lenders may charge more than others. That is why it’s extremely important to gather and compare offers from different lenders before narrowing them down to one online lender. You want to make sure that you’ll be able to afford the repayments while still leaving enough to cover your other business needs.

Applying for a Loan from Online Lending Companies

Online lending companies can be a viable alternative if you’re looking for an easy and quick way to access additional cash. But as mentioned, their rates are often much higher than what traditional lenders offer.

That said, always check the terms and make sure that you can afford it. Moreover, check their legitimacy and look out for red flags. As long as you do your homework, you’ll be able to take advantage of the benefits of online lending.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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