Online Businesses and Loans: How to Get Financed?

Online businesses are the new normal. In a dynamic economy, many traditional enterprises are taking their businesses online, cutting costs and reaching a broader audience than ever before. Online business loans have also grown in appeal, as banks adopt a cautionary approach to investing in small and medium-sized enterprises. Consider that in 1995, SBLs comprised approximately 50% of all bank loans, but by 2012 that number dropped to approximately 33% of all bank loans.

Clearly, banks are scaling back on funding small businesses overall, and online businesses in particular. These stats were provided courtesy of a Harvard Business study. The growth of online enterprise has facilitated a niche market for loans providers. Given that banks are reluctant to finance SMEs as liberally as they did, non-bank lenders are growing in size and scope.

It’s important to understand how an online lender can assess the viability of an online business. For starters, online businesses don’t necessarily have substantial investments in vehicles, machinery, equipment, or a fixed base of operations. All that’s required is Internet access and a PC. A cursory evaluation indicates that this may be a risky proposition for bank and non-bank lenders for online businesses. Fortunately, there are many metrics that lenders can use to assess the viability of an online business.

These include social media metrics, articles of incorporation, tax return forms, credit reports, online customer reviews, et al. The proliferation of online lenders is testament to the ease with which businesses are being approved for online loans. There are various financing options available to businesses, notably start-up loans, bank loans, and online business loans. For a new online business, the process is always somewhat challenging given that many lenders require at least 1 year of business activity.

Evaluating the Services Provided by Online Lenders

Banks are reluctant to take on the risk of financing online businesses. They are unable to verify performance metrics, but that’s not the case with online lenders. Australian online businesses can always turn to aggregator platforms for sage advice. SmallBusinessLoans is a leading review site of small business loans providers. This professional outfit evaluates the online lending market and provides in-depth insights for online businesses vis-a-vis funding options. Several lenders consistently top the charts, including Prospa, Capify, Get Capital, Sail and Spotcap.

These types of lenders can gauge the standing of a business within an hour or so. SmallBusinessLoans conducts extensive analysis of each loans provider in terms of funding they offer, their global reputation, repayment schedule, minimum turnover requirements, and other eligibility criteria. Today, online lenders such as PayPal are even providing loans to online businesses since they can tell how much money is coming in to the business via PayPal and they are prepared to offer loans at a high interest rate with a fixed payback regimen.

Several factors must be considered when selecting one non-bank lender over another. These include its licensing and regulation as official credit providers in Australia, the range of loan products available, and the ease with which the application process can be completed and approved. Typically, loans are available to online businesses for a wide range of purposes such as recruitment, training, repair, maintenance, inventory, vehicles, and acquisitions.

Loan amounts range from $5,000 up to $400,000 + depending on the provider and the criteria in place. Online businesses should always conduct the necessary research to ensure that they comply with the terms and conditions of these offers before signing on the dotted line. Online lenders make it easy to qualify for a loan, but their interest rates are typically higher than bank rates.

When to Use An Online Lender?

As always, online businesses – like other businesses – should only ever borrow what they can repay and intend to repay. Money should not be wasted in a willy-nilly fashion – it should go towards a strategic purpose. When an online business plans in advance, it is possible to secure financing at a better rate than a business which needs cash in a hurry. Provided the intent and the ability is there to repay the loan quickly, the online loan provider is a viable option for Australian businesses.

It is certainly better than being put through the ringer with a bank, and many online lenders do not require securities for financing. Established businesses with a history of bank loans are probably best suited to staying with banks, while online businesses are better suited to online lenders. Online loans are particularly useful when an unsecured loan is needed for a short period of time.