While there are pros and cons to any small business lending option, the fear of online lending is usually due to myths about the process.
Think you can't get funding for your small business online?
While there are pros and cons to any small business lending option, the fear of online lending is usually due to myths about the process itself.
Here are 13 of the most common myths about online lending for small businesses and the facts about the actual process.
1. It Takes too Long to Get Approved
This is no longer the case when it comes to getting a small business loan. Depending on the type of loan you are applying for you can get funding in as quick as 24 to 48 hours.
2. Startups Can’t Get a Loan
Startups are generally classified as businesses that have been in business for less than two years. If you are a brand new business you can qualify for business lines of credit if you have a good personal credit and history before you open the doors to your business. If you have already been in business you can get a loan in as soon as three months.
3. Online Lending Is a Scam
The online small business lending space has grown significantly over the last few years. The majority of the online lenders are now backed by large venture capitalist and hedge funds. The online lending space is as good as going to your bank and getting a loan.
4. All Online Lending Is Expensive
Depending on the type of loan you apply for and your risk classification it can be expensive. There are online lenders that offer rates in the mid to high single digits if you qualify.
5. It’s All Based Off Your Credit Score
A credit score is not the main determining factor in getting you qualified. The overall health of your business is taken into consideration. If your business is generating the minimum monthly revenue of what a particular lender requires. You can qualify for a loan with a credit score as low as 500.
6. A Computer Decides if I Qualify
There are some lenders who do use an algorithm to decide who qualifies. This is not the case for all online lenders. Many still use a person to underwrite their loans and will have a phone interview with the borrower to make sure it is a good fit, lender that use an algorithm will do this as well.
7. I Can’t Get a Small Loan
There really isn’t a loan amount that you can’t get online. When getting loans with daily payments you can get loans as low as $3,000. If you need a loan lower than that you can apply for business lines of credit, which start as low as $500.
Related Article:Bank Loan Request, Denied: Who Will Help Fund Your Business Now?
8. If One Online Lender Denies Me They All Will
Just like your local bank's, online lenders all have different criteria and risk assessments they are willing to accept to lend money. If one lender denies you there is often another lender that will have a lower risk tolerance that will be willing to lend you money.
9. Online Lenders Don’t Care if I Can’t Make a Payment and Won’t Work With Me
There are lenders that offer daily payments that can increase and decrease with your daily sales. This flexibility allows you to pay more when you’re doing well and pay less when business is slow.
10. I Need a Business Plan to Get a Loan
The days of applying for a loan and being asked for a business plan are virtually over. Unless you are applying for an SBA loan the chances of you being asked for a business plan are very slim. Lenders really just need to see that the revenue your business is generating is enough to cover your businesses operating expenses and pay back the loan in the desired term.
11. I Can’t Get a Term Loan Online. All Loan Are Only a Few Months
There are several online lenders that offer one to five-year term loans online. You can even apply for an SBA loan online with business loan terms up to 10 years or 25 years if real estate is involved. You might not be able to apply for these loans after only being in business a few months, but after two years in business, you can apply for just about every loan product you can find offered online.
Related Article:5 Reliable Tips for Selecting the Right Business Loan
12. If I Ask for Too Much Money They Will Automatically Deny Me
Lenders will not turn you down if you ask for too high of a loan amount. If the request is too high for what the lender thinks you can pay back and all else checks out OK, the lending company will offer a loan amount and terms which they feel you can afford to pay back and still operate your company successfully.
13. Online Loans Are Only for People Who Can’t Get a Loan From Their Bank
This is not true. Online lenders often tend to be more flexible than a bank would be and can usually fund much quicker, often within days. The flexibility and speed at which online lenders can operate make them a better option at times for businesses that can also qualify for loans at their local bank, which can take weeks.