Top Online Business Loan Options in 2020 and How to Apply

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What Is an Online Business Loan?

Online business loans are debt financing options that allow business owners to secure financing while avoiding a visit to a brick-and-mortar bank. Applying for business loans online is a convenient, accessible, and secure option for business owners—and more and more online business loan options are cropping up to address rising demand.

The best online loans available to small businesses are:

  1. SBA loans: Best for established, profitable small businesses
  2. Term loans: Best for established business owners with strong credit scores
  3. Short-term loans: Best for one-off business investments
  4. Business lines of credit: Best for business owners who need flexible access to working capital
  5. Equipment financing: Best for business owners who need to finance equipment
  6. Invoice financing: Best for business owners with unpaid invoices
  7. Merchant cash advances: Best for business owners with poor credit

This guide to the seven best online business loans will cover the most important details, along with all of the pros and cons of each loan option. We’ll also walk you through best practices to follow if you do decide to apply for a business loan online.

See Your Business Loan Options

7 Types of Online Small Business Loans

Loan Type Term Rates Loan Amount Time to Funding

SBA Loans

Five to 25 years
3.72% to 13%
Up to $5 million
As little as 30 days

Traditional Term Loans

One to five years
Between 7% and 30%
$25,000 to $500,000
As little as two days

Short-Term Loans

Three to 18 months
Starting at 10%
$2,500 to $250,000
As little as two days

Business Lines of Credit

Six months to five years
7% to 25%
$10,000 to over $1 million
As little as two days

Equipment Financing

Expected lifetime of the equipment
8% to 30%
Up to 100% of the equipment value
As little as two days

Invoice Financing

When the customer pays the invoice, you receive the reserve amount, minus fees
About 3% + 1% every week the invoice is outstanding
About 50% to 90% of the total invoice amount
As little as one day

Merchant Cash Advances

Automatically deducted each day through your merchant account 
Factor fee of 1.14 to 1.48
$2,500 to $250,000
As little as one day

If you’re considering using an online business loan to meet your funding needs, you’ve already taken a great first step. But how do you choose one of the many small business loans that are available online?

Not every business loan will meet your needs, or be right for your specific business’s qualifications. You might have to do a bit of shopping to find the perfect fit. To help you do this, we’ll break down more details regarding the best online business loan options available to you.

1. SBA Loans

The U.S. Small Business Administration (SBA) isn’t a lender—but it’s dedicated to helping small businesses find better and bigger loans that wouldn’t be available elsewhere.

The SBA encourages lenders to work with small businesses by guaranteeing a portion of those loans. The lender is incentivized to take risks—if a business defaults on the loan, the lender won’t lose all of their money thanks to the guarantee from the SBA.

An SBA loan is a great option for small businesses with strong credentials and those that have been in business for at least two years. SBA loans have extremely competitive interest rates—similar to what you’ll get from a bank loan. However, these low interest rates require high personal credit scores and strong business financials, so only top-notch borrowers will qualify for SBA loans.

The SBA offers a variety of loan programs and business resources, so the odds are good that you’ll find an SBA loan that fits your business type and matches your needs if you are one of those well-qualified borrowers.

2. Traditional Term Loans

A traditional business term loan, or what we like to call a medium-term loan, is the loan product you’re probably most familiar with. With a medium-term loan, you receive a lump sum of money to finance your business needs, and then you pay back the lender, plus interest, over a fixed period of time.

In the past, traditional term loans only came from financial institutions, like your local bank. You might still be able to score a medium-term loan from your bank, but if you don’t qualify, then you have online business loan options as well.

Traditional term loans can fit a variety of business financing needs. They work best when you’ve got a specific business project in mind, and you have reason to believe that taking out this loan will help your business grow. It’s still an option you’ll need fairly strong credit and a few years in business for, though.

3. Short-Term Loans

Short-term loans work like traditional term loans—they’re just for a smaller amount with shorter terms. Short-term loans are great for businesses that have immediate financing needs, like an unexpected cost or business opportunity.

Taking out a short-term loan is a good option when something comes up and you need money fast. But be aware that fast cash comes at a price. Usually, quick short-term loans tend to be expensive.

Short-term loans are very accessible loan products—they have some of the most relaxed requirements as far as online business loans go. However, the cost of online short-term loans is a tradeoff for accessibility—lenders need to protect themselves against the losses of lending to borrowers with lower credit scores or less time in business by charging higher rates.

4. Business Lines of Credit

As online business loans go, business lines of credit are some of the most flexible products available. A business line of credit works like a more powerful credit card—borrowers have access to a pool of funds that can be used for business purposes when they need it. You won’t start accruing interest or making payments until you actually use the line of credit and you’ll only pay interest on the funds you take out.

A business line of credit is a type of revolving credit, so you won’t have to reapply for the loan. Once you repay the full amount, plus interest, the line of credit gets reset to its original value—again, as your traditional credit card would.

A line of credit is a great online small business loan for companies that want a cushion for their cash flow. If you’re a seasonal business, or you think you need a backup plan for an emergency, a business line of credit can be a great option.

5. Equipment Financing

As a small business owner, you likely have equipment that’s essential to your business—think computers, machinery, or vehicles. Purchasing that equipment is a huge investment, and you likely don’t have the cash to pay for the equipment out-of-pocket.

Instead of paying the full cost of equipment upfront, small business owners can use asset-based loans. In this scenario, lenders will care more about how much the new piece of equipment will cost and its rate of depreciation rather than your personal credit score.

And with equipment financing, the equipment serves as collateral on the loan—meaning if you stop making payments the lender will seize the equipment and liquidate it to recoup their money. This built-in collateral means this type of financing is typically easier to qualify for.

But remember, if you go with equipment financing, you’ll actually end up paying more in the end than the piece of equipment actually costs. So before you take out this type of online business loan, make sure that the revenue you’ll get from the equipment outweighs the interest payments you’ll make on this loan each month.

6. Invoice Financing

Invoice financing solves a common business problem: Your customers are slow to pay their invoices and your cash flow is suffering because of it. While you wait for your customers to pay, you can use invoice financing to sell your unpaid invoices in exchange for ready cash.

Invoice financing companies will usually advance you 85% of the value of your invoices and they’ll hold 15% in reserve. Once your customers pay up, the lender gives back the 15%, minus their fees. They’ll typically charge a processing fee of 3% and a factor fee of 1% each week it takes your customers to pay their invoice.

Compared to other small business loans, invoice financing tends to be an expensive way to fund your business. You’re essentially paying for access to the money now instead of later, and you’ll end up losing part of what your customers owe you to interest rates.

7. Merchant Cash Advances

If you’re searching for an online business loan because you need access to cash quickly, a merchant cash advance might be the option you need. These loans can be approved and paid out in as little as one day—with no need for you to provide lots of documentation.

With a merchant cash advance, the lender advances you a lump sum of money, which you’ll pay back by allowing the lender to take a fixed percentage of your daily credit and debit card sales until the loan is paid back in full.

One advantage of this online business loan is that, unlike other loan products, you aren’t punished by having slow revenue months. Because the lender takes a percentage of your credit card sales, if you make less one month, the lender just takes less. On the other hand, when your business is most successful, lenders take more from your account.

The biggest disadvantage to consider is that merchant cash advances are extremely expensive. They come attached with some of the highest rates around, known as “factor rates.” You can calculate what this online business loan will cost you with an MCA calculator.

A merchant cash advance might be a good short-term fix for your business’s finances, but make sure you don’t get stuck in a never-ending cycle of daily payments.

Online Business Loans vs. Traditional Bank Loans: Key Differences

Even though commercial banks are still the most common providers of small business loans, the traditional bank loans they offer are still difficult for many small businesses to qualify for.

This is where online small business loans come in. With more online business loans available than ever, it’s in your best interest to learn what options are available to your business.

But you should also know the differences between traditional bank loans and online business loans. Here are the key differences to know between the two:

Online Business Loans Fund Faster

If you’ve already gone through an application for a traditional bank loan, you know that it isn’t a speedy process. The process is much faster with online lenders.

Since they’re not banking institutions, alternative lenders providing online business loans don’t have to work with as much government regulation during their loan approval process.

You also won’t have to provide as much paperwork for your application as you might with a traditional bank loan. You’ll spend less time gathering documents, and the lender will spend less time processing them.

And finally, the term “online small business loan” says it all: The technology aspect of these small business loans speeds up the application processing time significantly.

Online Business Loans Are More Flexible

Traditional banks offer the business loans you’re probably most familiar with: term loans, lines of credit, and credit cards.

If you’re pursuing online business loans, you’re going to have some more flexibility with the loan product you choose—you won’t be limited to the conventional options out there. As we’ve discussed, there are many different online business loans to serve many different purposes.

Plus, alternative lenders will fund a variety of loan sizes depending on the needs of your small business. While a traditional bank may not consider making loans for less than $250,000, online lenders can easily extend loans between $5,000 and $250,000.

Online Business Loans Tend to Be More Expensive

Although getting an online business loan might be easier for small business owners, it comes at a cost—online business loans tend to have higher rates and fees than traditional bank loans do.

Online small business loans are more expensive in part because they’re so accessible.

Unfortunately, if you have a less-than-ideal credit score or you haven’t been in business for long, funding your small business is a risk for lenders. So to minimize their losses if you default on your small business loan, online lenders charge high interest rates and fees.

Not all online business loans will be expensive—you might luck out with an SBA loan if you have a great credit score. On the other end of the spectrum, you’ll find APRs in the higher double digits with loan products like merchant cash advances.

How to Apply for an Online Business Loan in 4 Steps

Now that you’re familiar with what types of online small business loans are available, it’s time to start getting practical. How does a small business owner go about taking the steps to apply for a loan online?

Well, applying for a business loan online is remarkably simple and you can do it in four easy steps:

1. Choose which online business loans to pursue.

First and foremost, be sure to weigh all of the online business loans available to you and your business. Take into account your intended use of funds, your business’s qualifications, and how quickly you need the funding.

You should also be sure to check customer reviews and see if any of your potential lenders perform hard inquiries on your credit when you apply.

2. Review the online business loan requirements.

Once you’ve landed on your top online business loan options, focus on the business loan requirements that each potential lender has for borrowers. Do you meet each of the minimum requirements of all of the online lenders you intend to apply to?

Make sure you check all of their boxes before you go ahead and sink time and energy into applying for the loan. Otherwise, you might end up wasting your time.

3. Gather your online business loan application documents.

Once you’ve chosen which online business loans to apply for, start gathering all of your application materials. While some online lenders will only require that you provide your business’s accounting software login, many online lenders will ask for stacks of paperwork, like business tax returns and business bank statements.

Be sure to have these documents ready for your online business loan application.

4. Submit your online business loan application.

Finally, after you’ve prepared all of the paperwork and completed steps one through three, all you’ll have to do is submit your online business loan application.

With online business loans, this step will most often be as straightforward as pressing a button.

Choosing an Online Business Loan

You now know all your online small business loan options—and how to apply—but that doesn’t mean you know which loan is right for your small business.

There isn’t an exact formula for figuring out which small business loan is the right fit for your company.

But you can start narrowing things down by asking yourself these questions:

What Are Your Business Goals?

Choosing which avenue to take for business financing will depend on how much you need and what you need it for. For instance, if you know you only need a small amount for a short-term fix, you might want to consider taking out an SBA microloan.

If you’re about to undertake a big project, it’s a good idea to pursue a medium-term loan to get a larger amount that you’ll repay over an extended period of time—if your business experience and credit rating meet the lender’s minimums.

Small business loans can cater to a specific business financing goal, so make sure you know what you need the loan for before you commit to a certain product.

What’s the Nature of Your Business?

The right kind of small business loan will be different for each business.

If you’re a business that has a very high volume of credit card sales, a merchant cash advance might be a viable option for financing your business. Or, if your outstanding invoices are hurting your business’s financial health, invoice financing might be a good idea.

Just like each business works differently, each business loan will work differently, too. And only you will know what your business needs from an online business loan.

How Quickly Do You Need Funding?

Online business loans generally process fairly quickly, but they don’t all have the same processing time. If you’re in a rush to finance your business, certain loan products—like short-term loans or merchant cash advances—will fit your time constraints better.

These quick business loans tend to be the products with the highest rates, so if you can afford to wait on the funds, you’ll likely save some money on rates and fees. For instance, SBA loans typically aren’t funded for at least 30 days, but you’ll be able to secure more comfortable terms and rates for your business.

What Are My Business's Qualifications?

When searching for an online business loan, you’ll need to keep your qualifications in mind to understand which loans may and may not be available to you. Two of the most important lending factors taken into consideration are your personal credit score and how long you’ve been in business.

Like most lending scenarios, your personal credit score will be taken into consideration. Even though you’re looking for an online business loan, your personal credit still matters. When deciding whether to finance your small business, lenders won’t have a lot to go off of—especially if your business is young.

Online lenders will rely on your personal credit score as an indication of how likely you are to pay your loan back in full and on time. All in all, if you have a strong personal credit score, you’ll have more affordable options available to you.

How long you’ve been in business will also be an important factor. Almost all lenders—both traditional and alternative—will want to know how long you’ve been in business. In the eyes of a lender, the older the business, the better. Once your business hits a big transition, namely your two-year mark, you’ll be eligible for longer and more affordable rates.

The Bottom Line

When it comes to online small business loans, there are a lot of options you can pursue for your company. Sorting through them all can be an exhausting and confusing task.

We created Fundera to make the process of finding an online small business loan as simple as possible. With our free online marketplace, you can easily compare your options and figure out which small business loan is right for you.

You’ll be matched with one of our business loan experts who will help walk you through the process and find the best financing options for your business.

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Vice President and Founding Editor at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
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