Running a small business takes a lot of dedication and sometimes some extra financial help. For quick small business financing, online term loans may turn out to be your best solution. This new alternative to traditional bank loans offers several advantages and delivers the cash you need for your business in record time.
Overview of term loans
Online lending companies now offer small business financing with terms of one to five years. You can borrow up to $500,000 at interest rates ranging from about 6% to 26%.
Unlike bank loans, collateral is not typically required for term-loan approval, depending on the amount borrowed; signing a personal guarantee to repay the loan should be sufficient. Another important area that sets these loans apart from bank financing is turnaround time. Although bank loans require a wait of two to six months before disbursement, you should have your term-loan funding within about a week of completing the application.
Online term loans are tailored to finance small business owners with excellent personal credit. For those waiting for other Small Business Administration (SBA) loans to come through, they also function well as bridge loans.
Term loans fall into two basic categories: business loans and personal loans for business use.
The approval criteria for business term loans are much like those of business bank loans. You’ll need a financially profitable business that’s been operating for at least two years and taking in $250,000 or more annually. Your lender will consider both your personal and business financial history as well as your credit scores during the application process. Generally business loans range from $15,000 to $500,000 with one- to five-year terms, and collateral is preferred.
Personal term loans for business use are approved based solely on your personal ability to repay them. For this reason your lender won’t examine business finances at all, and approval is based on credit scores and personal finances only. These unsecured loans usually have three- to five-year terms and range from about $2,000 to $35,000.
Term loan pros and cons
Pros of online term loans:
- Loans are approved quickly, usually within a few days to a week.
- No collateral may be needed — businesses without real estate or other hard assets may be eligible.
- Online applications for term loans are much simpler and less time consuming than those for traditional bank loans.
Cons of online term loans:
- Interest rates are generally higher than those of bank loans.
- These loans typically have shorter repayment terms than bank loans.
Online term loans work well for small business owners with great credit who would rather not wait up to six months for bank loan approval and are either unwilling or unable to provide collateral. This convenience and flexibility may be just what your business needs to gain access to the funds necessary for increased growth and profit.
How to get term loans
No matter which type of term loan you choose, applying is comparatively quick and easy, and you never even have to leave home. Begin by filling out an online application, which should take about 15 minutes. You’ll then be asked to provide copies of financial statements, tax returns and other supporting documentation, which will probably take you an additional hour to gather, scan and upload. After that, your work is done. If approved, you should have your funds in hand within the week and often as quickly as a day or two.
Before applying for an online term loan, make sure to compare all your funding options here:Compare business loans
For more information on small business loans and other important aspects of small business operation, visit NerdWallet’s Small Business Guide.