4 tips to help you choose an online loan provider

Woman on computer choosing an online loan provider

Small business loans enable entrepreneurs to invest in their operations and successfully manage cash flow. Online loan lenders are a great option for small businesses looking for fast approval, competitive interest rates, and repayment plans that are tailored to their needs.

Traditional bank loans can be difficult for new and small businesses to secure, as banks tend to see them as a risk. Applying for bank loans or funding from other organizations like the Small Business Administration (SBA) can be time consuming and resource intensive for small business owners.

Online lenders make it easy to apply for a loan so that you can get the funding you need to expand your business. In this article, we’ll share some important tips to help you choose the right online loan provider.

What is online lending?

Online lending is an alternative to traditional lenders like banks and credit unions. Many online lenders are categorized as financial technology, or “fintech,” platforms that provide credit via digital application and approval processes, meaning that you don’t have to visit a branch to secure financing. Types of online lending include:

  • Lines of credit

  • Term loans

  • Peer-to-peer lending

  • Merchant cash advances

  • Invoice factoring

Learn more about traditional and online lending options in our Guide to Business Funding.

Online lenders leverage automation to expedite the application process. This helps small businesses get access to working capital immediately, allowing them to stay flexible when unexpected costs come up. For example, you can apply to see if you qualify for business credit with Fundbox in a few minutes — the application does not impact your credit score. A credit decision is typically made within minutes and funds can be available in your account as soon as the next business day, if approved.

Securing funding from an online lender is often more convenient than getting credit from traditional institutions, but it’s important to do some research up front to find the lender that can offer you the best options for your business.

1. Find a lender that caters to your business needs

Before you start looking at your online loan options, you should figure out what your business needs. Understanding how much funding you require and what you’ll use it for is critical to choosing the right type of financing. You should also have an idea of what repayment terms will make sense for your business’s cash flow.

Though you might want to apply for as much money as you can qualify for, keep in mind that you might be locked into your repayment terms. Some lenders charge prepayment fees if you want to pay the loan off early when you do not use the full amount you receive.

Additionally, make sure that your monthly repayment installments do not negatively impact your cash flow. If you find yourself struggling to repay on a timely basis it can cost you more interest, negatively affect your credit score, and make it harder to secure funding in the future.

Ensure that the lenders you’re researching provide loan amounts and repayment terms that work for your small business. Look for lenders that do not charge prepayment fees and see if they offer automated regular payments to keep you on track.

2. Look for legitimacy, transparency, and security

When you’re searching for online loans, it’s critical to make sure that the lender has a good reputation. To avoid scams and too-good-to-be-true financing, verify the business’s information (including a physical address) on the Better Business Bureau website.

You can also look at customer reviews and listings on third-party review sites like Trustpilot to ensure that the lender you’re choosing has provided positive experiences for other business owners. Another way to make sure that a business is legitimate is to see if there’s been recent press coverage of the company.

Throughout the application process, the terms, rates, and fees should be clearly laid out. Before you sign the loan agreement, make sure you understand what’s stated in the document. If you’re confused at all, the lender should provide customer service support to clarify anything that does not make sense.

Finally, when you provide your business information, it’s important to understand how the lender will use and store that data going forward. Lenders should have ample information on their sites about how they keep your information secure. You can usually find this information on their Privacy Policy page.

3. Thoroughly research interest rates and APR

Lenders should never charge hidden fees, but it’s important to understand all the fees involved in the loan because not all of them are obvious. The advertised interest rate is rarely the amount you will actually pay.

Make sure you know what the annual percentage rate (APR) will be. APR includes all the initial and ongoing fees you’ll pay to the lender for facilitating the loan, along with your interest rate, and reflects what you’ll pay each year on top of the loan principal.

Some fees you should be on the lookout for are:

  • Origination fees: The fees you’ll pay to process your application and disburse the loan. Fundbox never charges origination fees.

  • Administration, service, or maintenance fees: A percentage of the loan amount paid to the lender to facilitate the loan on an ongoing basis. These are similar to a mortgage servicing fee.

  • Late payment fees: Lenders may charge you for paying your installments late.

  • Insufficient funds (NSF) fees: If your payments are automatically withdrawn from your bank account and the account lacks sufficient funds to cover the installment, the lender may charge you.

If the lender provides secured loans (which sometimes come with lower interest rates), other factors you should consider include stipulations like collateral and personal guarantees.

It’s important to know what could happen if you default on the loan. Online lenders that offer equipment financing might use the equipment itself as collateral, but other lenders might require you to provide additional assets to secure the loan. If a loan requires a personal guarantee, your own assets will be used to cover the lender’s losses if you default.

4. Choose a lender offering exceptional customer service

As a small business owner, you’re focused on delivering the best products and services to your own customers. The convenience of online lending shouldn’t stop at the application and approval process. Online loan providers should be there for you with 24-hour access to support and resources that help you manage your loan.

Look for lenders that have built their companies around helping small businesses grow. These lenders often have educational content that meets you where you’re at, providing accessible information without the heavy financial jargon.

Fundbox provides working capital up to $150,000* for small businesses with flexible repayment terms and straightforward interest rates. With a Fundbox Line of Credit, you can take advantage of a balance that replenishes as you pay it down over a 12 or 24 week term, enabling you to keep investing in your business without reapplying for credit. With Fundbox, there are no origination fees, no maintenance fees, and no prepayment penalties.  Applying is free and easy, and it does not impact your credit score.

Apply today to see if you qualify for the funding you need to scale your business.

*Credit line amounts, rates, and terms are based on creditworthiness and subject to change, additional documentation may be required.

Fundbox makes capital available to businesses through business loans and lines of credit made by First Electronic Bank, a Utah chartered Industrial Bank, member FDIC, in addition to invoice-clearing advances, business loans, and lines of credit made directly by Fundbox.

Fundbox and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

Ready for more?

Apply for funding and find out if you qualify today