Traditional Bank or Online Business Loans, Which Is Better?
Offline or Online Lenders, What is Better
Since the credit crash of 2007-2008 The big banks have cut way back on offering small business loans, making it very hard for small business owners who seek working capital for their business. Big Banks are heavily regulated by the government since they take deposits, whereas online loan providers are not limited on what they can do.
Online Business Loans
Pros – Easier To Qualify, Faster Approvals, Faster Funding
Cons – Terms Shorter, Smaller Loan amounts,
Traditional Business Loans
Pros – Longer Terms,Lower Interest,Higher Loan Amounts
Cons – Need Perfect Credit,Can Take Months, Low % Of Approvals
How Long Is The Process Of Applying And Waiting For Approval?
Traditional Banking – This can take many months 3-6 months. From the first visit you will be asked to bring in documents of all kinds such as personal income taxes, business income taxes, Profit and Loss Statements, Proof of Business Owner etc. Then if approved it can take up to 2 more weeks till the business owner actually gets the funding.
Online Banking – Much quicker as it usually consists of an application and a few bank statements. Pre-Approvals are in 24 -36 hours and funding can take 5-7 days after.
The Most Common Questions?
How Much Can I Borrow?
Where Do I Apply?
There are 2 answers to that question. If the business owner is very well established, great credit, high volume business, needs a big loan amount the traditional banks would be his best bet. On the other hand if the business owner that’s fairly new and is just looking for some working capital quickly then online banking might be the way to go.
Big banks do not like to offer small loans, whereas online banking will offer loans at as little as $5000.00.
Whats The Differences In Loan Requirements For These 2 Lending Sources?
Traditional Banks are not interested in lending money to new or young businesses. They look to lend to more established businesses and will make them prove just that by asking them for many years of financial documents. Business must have perfect credit.
Newer businesses with not so perfect credit will find out that online lending sources are much more leaner on their requirements for funding. Some will lend you money even if you have as little as 3 months in business. Credit scores as low as 500 have been approved for funding. Some online lenders will offer unsecured credit loans which is something traditional banks don’t like to do.
What Are The Terms? Who Gives Better Terms?
Traditional Bank Loans offer the longest terms on paying back the loan. The reason being is that they are very selective on the businesses that they choose to lend to because they are so strict with their loan requirements their risk is low. Since their risk is low they tend to offer the lowest interest rates. Online lenders offer very short terms and higher interest rates because they take on more risk. ie. unsecured loans, newer businesses, and imperfect credit.
What Credit Score Is Needed For Traditional Funding? Online Lenders?
For Traditional Banks 700-800 is what they look for as well as the years in business, Money business made during that time, as well as collateral.
Online Lenders don’t focus as much on credit scores but like to see at least 500. They base their decisions on other factors using algorithms, income volume and strength of the business.
How Much Paperwork Is Needed To Apply?
Traditional Bank Loans ask for alot of documents such as tax returns, profit and loss statements, bank statements and more. They will want to see a business plan as well as collateral. Online Lenders just need a quick application and a few bank statements and in hours can give a pre-approval, whereas Traditional Banks can take months before you hear their decision.
Pre-Aprovals By Phone In Minutes
Your Alternative Lending Source