If you’ve applied for a small business loan before, you might already be dreading the never-ending process and the unforgiving amounts of paperwork that come with loan applications. And this is to not even mention having to wait months for a decision back from the lender with no promise of funding on the other end!
Before you go panicking about the trials to come, there is good news. If you’re revisiting financing options and business loans after several years, you may notice a few key changes in the lending atmosphere.
Here are five things about applying for a business loan today that might surprise you:
1. You Have More Options Online
It used to be that your traditional brick and mortar banks were the only lenders around, but that is simply no longer the case.
When the financial crisis hit in 2008, big banks reacted by tightening up their lending standards, causing a major decline of their loan approval rate—particularly for small businesses. That void left behind by the banks gave way for a new crop of lenders to pop up. These alternative lenders are making it much easier for small business owners to find the funding they need to grow their businesses. Now there are more options than ever, and even better: they’re all online!
2. Faster Funding
Securing a loan from your local bank can involve long applications and piles of paperwork, along with lengthy underwriting processes that could leave you waiting months to get cash in hand! If you’re waiting on the money to help grow your business, these delays can throw a serious wrench into your plans. So it might be a nice surprise to learn that with online lenders, you can find funding much faster.
The internet is where the idea of instant gratification was born, and alternative lenders do not disappoint. Some loan applications only take minutes to fill out, and you can often have cash in hand in as little as two days! When money is tight for your business’s accounts, this speed can come as welcome relief.
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3. You Don’t Need Perfect Credit to Qualify for a Loan
Although the approval of a more conventional loan warrants a pretty impeccable credit score (think 680 or above), online lenders have less stringent standards, making it easier for business owners with a less than stellar credit history to still get the funding they need.
Instead of just checking your credit score, some lenders will allow you to apply by linking your online business accounts, such as your business checking account, to determine your loan eligibility.
That said, don’t go ignoring your credit score just yet. Even though online lenders do factor in things like the age of your business, your annual revenue, and your cash flow into their decision making—they will still take a peek at your credit score. If it’s anywhere below 600, consider holding off on your loan application while you take steps to improve your score.
4. Flexible Payment Schedules
With a traditional loan, even if business is slow, borrowers are obligated to come up with the same monthly payment for the duration of their repayment period. Now, with online lenders, you may be pleasantly surprised to see that some online loan products come with flexible repayment terms, which can be especially nice if you own a seasonal business or have an irregular cash flow/an alternative fiscal year.
With loan products like a merchant cash advance, you’ll repay the loan with a fixed percentage of your daily sales—so on the days your sales are lower, you’ll pay less, and vice-versa. Keep in mind that in some cases this flexibility comes with a higher interest rate—but if you operate a seasonal business, it may be worth the cost.
5. You Can Borrow Smaller Amounts
Since smaller loan requests generate less profit for banks, they’re much less inclined to approve them. Luckily, online lenders have technology on their side, which brings down their underwriting costs and allows them to write checks for smaller loan amounts.
Have you heard of the Small Business Administration’s Microloan program? It started in 1992, and has seen tremendous growth in recent years. This program was specifically designed to service entrepreneurs who needed cash, but not enough to be worth the costs for larger banks. Microloans from the SBA average around $13,000, but are available for as much as $50,000 or as little as $500.
Applying for a Business Loan
Since alternative lenders have entered the scene, small business owners are finding it much easier to get loan approval. And because everything happens online, the time is takes to get cash in hand has been cut down significantly.
Conventional loans do still come with the most affordable rates, and well-established businesses certainly may still find them to be the best loan option for their lending needs. But if you’re in the market for a business loan and don’t meet the a big banks’ lending standards, you now have plenty of other options available.
No matter which loans you’re looking at online (SBA loans and longer-term), you’ll definitely need to have your books in order. Lenders will want to see your Profit & Loss, balance sheets, and your previous year tax returns so make sure you have the right accountant/CPA on your side.
P.S. Loans aren’t the only thing that has changed over the years… see 6 more ways doing business has changed since 2006.