As small businesses look to grow and reestablish themselves in the wake of the COVID-19 pandemic, businesses with good personal and business credit scores may have access to more simplified application and speedy approval processes through online lenders than they would typically see from more traditional commercial lenders.
Whether you’re a small business services office, construction company or independent medical practice, access to cash to grow your business or get caught up with expenses is crucial. The first thing you need to do is find out your personal credit score, which you can quickly obtain online – and often for free – through various services such as Experian, Equifax or Nav.
Online Lenders are Better for Small Businesses Because They Offer More Choice
“Technology like blockchain and artificial intelligence will bring in new players that will challenge the hegemony of the traditional banks, and this competition will make it better for small businesses with various options,” said Hitendra Chaturvedi, Professor of Practice, Supply Chain Management at Arizona State University’s School of Business, in a recent interview with AdvisorSmith. “Post-pandemic, this could be the birth of a new small business landscape as we know it—and all for the good.”
While credit history, time in business, cash flow and business collateral will always be factors considered by all lenders, online lenders do offer some unique advantages over traditional lenders:
#1 Fewer Application Requirements
A traditional loan may require long and tedious paperwork from an applicant. Some traditional lenders may require you to submit an outline of your ongoing business plans and give presentations outlining your business goals and objectives. They will also probably require tax returns and other IRS documentation, as well as personal credit card statements and outstanding invoices.
Online lenders, however, often only require a signature, credit score and your three most recent bank statements to apply.
#2 Amount, Flexibility of Funds
What if your business only needs to borrow $10,000 or less? Traditional brick and mortar lenders are typically interested in larger loan amounts in order to make more money. Online lenders, however, are usually more flexible in the amount they are willing to lend and more nimble in their terms for the loan.
Additionally, traditional lenders often will require you to specify how the borrowed funds will be used and may require you to commit to using those funds for the exact reason stated. That requirement is often more relaxed with online loans, which typically allow you to use funds for any legitimate business purpose.
#3 Faster Approval and Underwriting
While all traditional lenders are different, some may take 10 -30 days to review and approve your loan. In some cases, small business loans such as SBA loans may take up to 45-60 days, depending on the lender. Traditional lenders will investigate your credit history, collateral of business and the current and projected income of your business. While online lenders do examine many of the same factors, your approval can happen the same day.
Plus, online lenders often use underwriting sources in loan applications that traditional lenders will not, such as a business’s credit card sales and accounts receivable. As such, small business loans from online lenders may be more suitable to small businesses that may not qualify for traditional bank lending.
#4 Personalized Service
Historically, one of the advantages offered by traditional lenders is the ability to speak face-to-face with a banker who will listen to your story. However, more and more, online lenders such as Kapitus have financing specialists who are also able to hear your story, assess your unique situation and incorporate human factors into the online underwriting and approval process.
In addition, many online lenders use their own proprietary risk models, considering factors such as industry, time in business and current external forces. For example, many online lenders will view the COVID-19 pandemic as an extraordinary event and are willing to consider your three-year cash-flow history to get a better idea of your ability to pay back the loan.
#5 For Those With Less-Than-Stellar Credit
Traditional lenders are likely to reject your application if your personal credit score is less than 680. Online lenders, however, may be more willing to give you a loan with a higher interest rate, depending on why you are looking to borrow and what you plan to use the assets for. You should have a chat with your accountant or a financing specialist about your chances of getting approved in such a case.
#6 Financing for Any Business Needs
Online lenders offer a variety of ways to finance a unique business. They often do not ask to see a business plan and are primarily interested in your business revenue history. Regardless of why you need the money, online lenders, such as Kapitus can offer financing to fit that need. From money to launch a new product, to heavy equipment financing, to lines of credit to handle basic day-to-day operations, online lenders can help you achieve your vision.