Traditional banks and online lenders both offer many types of small-business loans. Banks tend to have strict requirements and slow funding, but offer the lowest interest rates. Online lenders are faster and more flexible, but charge higher rates.
To decide which option is right for you, consider the application process, funding speed and cost, as well as your business’s qualifications.
Read on for the full details, or jump down to our quiz to find your best fit.
How much do you need?
We'll start with a brief questionnaire to better understand the unique needs of your business. Once we uncover your personalized matches, our team will consult you on the process moving forward.
Online business loans vs. bank loans: At a glance
Online business loans | Bank business loans | |
|---|---|---|
Maximum loan amounts | Smaller loan amounts — many cap at $500,000 to $1 million, though some lenders offer more. | Larger loan amounts. |
Repayment terms | Shorter repayment terms. Often require daily or weekly payments. | Longer repayment terms. Usually require monthly payments. |
Interest rates | 14% to 99%. | 6.37% to 10.98%. |
Qualification requirements | Flexible. May accept startups and borrowers with bad credit. | Strict. Typically need strong credit and revenue, as well as multiple years in business. |
Application process | Online-based. | May require you to apply in person at a branch location. |
Funding speed | As fast as the same day. | May take several weeks or longer. |
Pros and cons of online business loans
Pros
Streamlined application process with minimal documentation required.
Can receive funding within days or as quickly as the same day.
Flexible qualification requirements; lenders may work with startups or borrowers with bad credit.
Cons
May not have personal customer support; not ideal for building a relationship with a lender.
Often have higher interest rates and smaller loan amounts.
Shorter repayment terms; may require daily or weekly payments.
Pros and cons of bank business loans
Pros
Low interest rates and longer repayment terms.
Larger loan amounts available.
Ideal for building a relationship and getting more personalized customer support.
May be able to bundle multiple financial services from the same institution.
Cons
Slow funding timeline; document-heavy application.
May have to visit a branch location to apply.
Strict eligibility requirements; often need strong credit and multiple years in business.
May require collateral.
How to decide between an online business loan and a bank loan
The right business loan for you will largely depend on your financial situation. Business bank loans offer the lowest rates and best repayment terms. But you’ll need strong credentials to qualify. Online business loans are a good fit for startups, borrowers with bad credit and those who need fast funding.
As you compare your financing options, consider questions such as:
How much money do I need?
Banks are a better option for larger loan amounts ($1 million+). Keep in mind that you’ll need good or excellent credit and a strong financial profile to qualify for large business loans.
How fast do I need funding?
If speed is your priority, online loans will be your best option. Online lenders typically charge higher rates for their speed and flexibility, however.
What can I qualify for?
You’ll typically need strong credit, solid revenue and multiple years in business to get a bank loan. Online lenders, on the other hand, may accept new businesses or those with bad credit.
Can I provide collateral or a down payment?
Banks are more likely to require physical collateral or a down payment compared with online lenders. Providing collateral or a down payment, however, even if it’s not required, can help you access more competitive rates and terms.
How much will the loan cost?
If you can qualify, banks will likely be the more affordable option. Online lenders can provide competitive offers, but they may require frequent, short-term payments over a shorter period of time. Some also charge interest as a factor rate. This can make it hard to understand your true cost and compare it with other loans. It can be helpful to convert a factor rate into an APR to get a better sense of your total loan costs.
Here’s a cost example on a $150,000 loan:
Bank loan | Online loan | |
Rate and term | 9% APR; 3 years. | 1.25 factor rate (30.23% APR); 18 months. |
Repayment | $4,769.96 per month. | $2,373.42 per week. |
Interest cost | $21,718.56. | $37,500. |
Total amount repaid | $171,718.56. | $187,500. |
Even though the online loan’s term is half as long, it costs nearly $15,782 more overall, a result of that much higher effective APR.
What type of customer service do I want?
If you want to build a relationship with a lender, banks are likely a better choice. Banks can offer in-person, personalized help and often provide other financial products. If phone, email or live chat support works for you, an online lender can be a good fit.
🤓 Nerdy Tip
Want help deciding which business loan is best for you?
Consider working with a business loan marketplace, like NerdWallet Small Business. You complete one simple application, see multiple options and get advice from lending experts.
