Alternative Online Loans
This is a big topic, but an important one to understand. A new breed of online alternative lenders is transforming small business lending, expanding new options for entrepreneurs through simple, streamlined application processes and convenient and quick approval and delivery of funds. In some cases you can get your loan approved in less than 10 minutes. Alternative lenders use technology and new sources of data, such as Yelp reviews and sales patterns to assess risk, so they often make loans where a traditional bank cannot. Alternative lenders have approval rates of 60%.
For many small businesses, going online rather than going to a bank is becoming the norm. However, entrepreneurs must proceed with caution and take the time to understand all applicable interest rates, payment structures and potential fees associated with these loans. The online lending space has some unsavory players whose opaque terms can mask exorbitant rates—the business version of payday loans. Also, online lending is largely unregulated at this point and we have observed a lack transparency with some of these companies. The problem is it may be hard to tell them apart.
Merchant Cash Advance
A small business financing option characterized by short payment terms (generally under 24 months) and small regular payments (typically paid each business day) until the loan, plus a premium, is paid back.
Online marketplace (peer-to-peer) lenders connect borrowers with institutional and individual investors.
Cash Flow Loans
Online cash flow lenders offer short-term, high-interest loans typically used for working capital such as purchasing inventory, bridging receivables gaps, expansion or managing unexpected expenses and cash flow.
Tips for choosing the right online lender
It can be confusing. If you have time, visit the different sites and shop around. You can also go to one of the aggregator sites that allow you to apply once, and match you with suitable lenders. These include Fundera, Lendio and Biz2Credit. Bonus: they all provide good educational tools on their sites.