With so many online business loan options how do you choose the right one?
We have compiled an easy to understand list of tips and advice to follow when choosing the best online business loan for your business.
There is a lot more to having a successful business than just a good idea. It’s a great first step but unless you have the ability to self-fund securing a loan will be key. Online business loans can provide a fast and easy way to secure funding but you must be aware of all the benefits and pitfalls. Let’s examine how to choose the best one for your business’s needs and objectives.
Most common types of online business loans
You may be surprised to learn that there are many different types of online business loans. Before we dig into some tips and tricks for evaluating and choosing the right loan, let’s look at two of the most common types of loans, as well as the individual funding options within each category:
- Small Business Cash Advance
- Business Term Loans
- Equipment Financing
- Invoice Financing
- Lines of Credit
- Bridge Loans
Tips for evaluating and choosing the right online business loan
These were just a few examples of the most common online small business loans. To help you avoid becoming a victim of information overload, here are some tips for evaluating and choosing the right online business loan for your situation:
1. Become more self-aware.
Before you do anything else, you have to spend a little time evaluating your business and how lenders see you. A quick credit check will help you understand your score, which is one factor involved – but you also need to look at your debt-to-equity ratio.
The debt-to-equity ratio is an important metric that a lender analyzes. It is a basic financial principle that the more you rely on debt versus equity to finance your business, the more risk you face. The higher the debt-to-equity ratio means the loan has more risk and this can affect interest rates.
2. Consider the interest rate.
You must take into account the interest rate, although this shouldn’t be the only determining factor. For example, if a $100,000 loan has repayment terms of five years, a difference of two percentage points really doesn’t matter that much in the grand scheme of things. It would, however, matter if the loan were for $1 million spread out over 20 years. Be smart about comparing interest rates, and give more weight to it when terms are higher.
3. What are the repayment terms?
Speaking of repayment terms, what is the length of time? What does the payment schedule look like? Can you pay off the loan early, or do you have to wait until maturation? It’s easy for these to seem like small little details in the fine print of a loan, but they can save or cost you tens of thousands of dollars when it’s all said and done.
4. Consider application fees.
Are you aware that some lenders actually require you to pay in order to submit an application, while others don’t?
It is important to understand what types of fees are associated with the online business loan application. Some lenders charge an application fee, while others charge fees for items tied into the application, such as the cost to run your credit report or get your collateral appraised.
Take your time
It may feel like time is against you in the process to secure funding for your business, but it’s ok to take your time with this decision. The worst thing you can do is rush and prematurely select the wrong loan. It could be devastating to your business. Be patient and carefully evaluate all of your options before proceeding too far in the process.
If you have any questions about securing the right online business loan for you feel free to contact us by phone or email to discuss what options are available for your business.