Though it’s not always the case every time, reliably you can expect to pay extra for online loans as compared to loans from traditional institutions like banks and credit unions. It costs less than a payday loan, but can be comparable to what you’d pay for credit card debt. This leads some business owners to discount online loans all together.
Which is a mistake, even with the higher fees, online loans can work out better than traditional lending for a variety of reasons. For example, if you require an immediate answer, your local bank probably isn’t going to be able to facilitate that, leaving you to wonder when and if you are going to get the loan.
Online Loans Fund Faster
Here’s the thing about traditional loans. They can take a week or more to fund even after you get approved. Worse, the long timeline means you can’t accurately predict when the funds will hit your account. This creates two serious problems, depending on when funding happens:
- If it takes too long to fund, you get your money after you needed the money. The profits you lose out on because of the late start can easily amount to more than the extra cost in fees.
- If it funds too early, you’re paying extra interest on unused money. Again, if the time period is long enough it might equal or exceed the actual cost of the online loan fees.
Online Loans Use Different Approval Metrics
Banks and credit unions (especially when working with the SBA) are less than flexible when it comes to approving loans. If you’re credit’s not perfect you’ll either qualify for less money than you need, or get additional interest and fees above what was originally advertised or offered.
Online loans use a variety of metrics to decide who they loan to, how much they lend, and what they charge for the service. This does include some of what the old school lenders use, but also social metrics, real-time banking information and other online metrics. If you’re having trouble qualifying for a large enough and affordable enough traditional loan, an online loan can get you the cash infusion your business needs.
Online Loans are More Flexible
Applying for a traditional loan can feel like begging hat in hand, with the lenders established and large enough to pick and choose from applicants where they’ll send their money. By contrast, many online lenders are “lean and hungry.” They have a wider variety of loan products, and a more flexible approach to application and approval. This translates to (a) you having a better chance at a loan, (b) a streamlined application process, and (c) loan conditions that fit your company’s needs as closely as possible.