Starting your own business is a very brave, but also risky step. Entrepreneurship is very demanding, because it means that you deal with a large number of things every day in order for everything to function optimally. If you run a small business, you already know that a lot of planning, top organization and financial resources are needed to ensure that everything runs smoothly. This is not always easy when you are at the beginning, so often small businesses need an extra push in the form of a loan. Nowadays, online loans are becoming more and more popular, so in the rest of the article we discuss some of the main pros and cons of online loans for small businesses.
- What is a loan?
- What is an online loan?
- Pros of online loans for small business
- Cons of online loans for small business
What is a loan?
A loan is a type of money borrowed by a financial institution (for example, a bank) that you have to repay within the agreed time. To be eligible for a loan, you must meet the criteria set by that institution. It is necessary to submit a request and wait for the loan to be approved, after which you will receive the agreed amount in full, and you will repay it in the agreed manner, within the agreed deadline. Another catch is that you not only return the money in the amount you borrowed but interest is added to that amount, which can vary depending on the financial institution. This means that in the end you always return more money than you borrowed and that is something you commit to by the contract.
What is an online loan?
Online loans are a relatively new thing that can be a great choice for small businesses. Why? Because often banks and other financial institutions may consider small businesses too risky to lend, so they refuse to do so. In such cases, small business owners have to find another way to get their much needed financial resources, and online loan is one of them. The process of obtaining a loan in this way is quite practical, because everything happens online and you only need a few minutes to apply for a loan. All you need to do is leave information such as first and last name, contact information and social security number, although some lenders ask for additional, more detailed information. It is important to know that these lenders are mostly unregulated, but that is not necessarily a bad thing. An online loan has many advantages and disadvantages, so depending on what is important to you, this can be too risky a step or a perfect choice for your business. Thinking Capital listed some of the most common reasons for online business loans, so you can read more about it there.
Pros of online loans for small business
1. It saves you a lot of time
One of the biggest advantages of online loans for small businesses is certainly the speed of the process. With banks, the process of applying for a loan and its approval is very long and tedious, because it is necessary to collect a bunch of different documents. Then you forward them to the bank and it processes and verifies them. The whole process takes a very long time, so if you are in a hurry this is definitely not the best option. There is no faster way to get a job done than going online, and that is exactly the case with online loans. The process of approving an application for an online loan and obtaining funds sometimes requires only one day, which is really fast, practical and a huge advantage when time plays a significant role.
2. Easy comparison of different lenders
Online loans allow you to easily and quickly search for different lenders and compare their offers. You do not have to physically go from one bank to another to hear the offers and conditions, but you can do all that in the comfort of your home. Thanks to the fact that everything happens online, you will be able to find the best lender for yourself, who offers interest and conditions that suit you completely.
3. Credit history is not a significant factor
If you have a bad credit history, the chances that you will get a loan for your small business from a bank are significantly reduced. Fortunately, this is not the case with online loans, because credit history is not a significant factor. Even if you have had some bad experiences in the past, you will be able to get an online loan. However, this means that you will probably have to accept paying a higher interest rate, but many people think that it is completely worth it.
Cons of online loans for small business
1. They are not 100% reliable
One of the disadvantages of online loans is that everything happens online and this type of loan is still a new thing, so you cannot completely rely on the lender. You never know what might happen and whether you will be deceived in any way. Of course, there is always a chance that unforeseen things will happen with regular banks, but they are certainly much less probable. Always choose well-known online lending institutions that have a built-in reputation.
2. Higher interest rates
As we mentioned, even with a bad credit history, you can get an online loan, but that means you will have to pay higher interest rates. For some people, this is perfectly fine, but for others it is a significant obstacle, especially if they are unsure of the success of their small business.
3. You need to repay loan much faster
When you borrow money from a bank, the whole process takes much longer, but you also get a lot of time to repay the loan. With online institutions this is completely different. Yes, you will get the money much faster, but you will also have to repay it faster, which is not a realistic option for everyone.
Conclusion: When you start your small business it is essential that you have enough resources, including financial ones. That is why sometimes business owners need an extra push, and they achieve this by taking a loan. In addition to taking a loan from a bank, nowadays there are also online loans that have their advantages and disadvantages. Be sure to understand the whole process because only then you will be able to make a decision about which option is best for your small business.