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Updated: April 17th, 2020
Online business lenders and banks both offer small business term loans. Here, we explore the difference between an online business loan and one from a bank.
Online lenders and traditional banks both offer small business term loans. However, the requirements, application process, and funding time can vary. So, one type of lender might be best for your business. In general, online business lenders offer speed and flexibility, while traditional banks might offer a lower interest rate but have a lengthier review process and stricter requirements.
Online business lenders are often a type of alternative lender and may finance loans without accepting consumer deposits. For example, some online lenders use a peer-to-peer model to connect investors with business owners who need financing.
Traditional banks may also partner with online lenders or create their online small business funding platforms. However, online-only lenders may focus and specialize in a particular type of loan or customer, such as term loans for small businesses. Traditional banks may have a small business department, but the department only makes up a portion of its overall business.
Where online business lenders tend to differ from traditional banks, the most is in the application and funding process. Many lenders heavily invest in underwriting technology to screen businesses quickly. As a result, you may be able to apply for an online business loan in minutes and get funding within one or two business days.
Traditional banks that offer business financing may have more layers of bureaucracy to answer to So, the process could be clunkier, require more paperwork, and or necessitate in-person meetings. Banks may also be set up to better serve medium and large businesses than small business owners.
Term loans can give you a large amount of funding, which you can quickly put to work in your business. You’ll then repay the loan in regular installments—generally, monthly payments, but some lenders require weekly or biweekly payments.
You may find favorable terms with either an online business loan or a term loan from a traditional lender. Keep in mind, though, that each company may have its requirements and terms.
For example, some lenders offer emergency loans to small businesses that have poor credit. But the loan’s high-interest rate and short repayment period can make it difficult to repay. Others offer low-rate loans with favorable repayment terms, and they can be a good option if you’re purchasing long-term assets, renovating a property, or hiring a new employee.
While the specifics will vary depending on the lender, there are a few general differences when you’re comparing online business lenders’ term loans vs. bank loans.
|Online Lender Term Loans||Traditional Bank Term Loans|
|Loan Amount||$2,000 to $1M+||$10,000 to $1M+|
|Repayment Period||3 to 60 months||12 to 84 months|
|Annual Percentage Rate (APR)||6% to 30%||3% to 13%|
|Application Time||Under 15 minutes||Several hours|
|Processing and Funding Time||1 to 2 business days||May take weeks or months|
|Requires a Detailed Business Plan||Likely no||Likely yes, for larger loans|
Whether you’ve decided to apply for small business funding online or with a traditional bank, or want to review all your options, you’ll want to compare the lenders’ general lending process and loan terms. A few important points include:
By comparing lenders’ terms and processes, you can narrow down the list of potential lenders to a few top picks. You can then apply to see which lender offers you the best loan before accepting an offer and receiving the loan.