Thanks to advancements in cyber security and web technologies, it’s now possible for small businesses to procure the funding they need through the Internet. Yet for inexperienced business owners and first-timers in online funding, the process may appear intimidating and overly complex to the point that it repels them from actually submitting an application.
Understand How Online Funding Works
Unlike traditional bank mortgages, web-based loans use algorithms to determine suitability of a small business’ application. They decide based on several key factors including credit score, cash flow, and revenue. They may also use non-traditional parameters, such as past transactions with vendors, integrity of the management team, and social media metrics.
Online loans are typically sourced from several lenders. Some loans are procured through institutional investors while others through peer-to-peer campaigns. The latter is becoming increasingly popular and involves regular people investing their money directly in exchange for slightly higher interest rates.
Decide Which Form of Online Funding Best Suits You
Online loans are usually packaged in three primary ways – term loans, accounts receivable, and lines of credit. Term loans consist of one lump sum that small businesses are required to pay over a predetermined period, usually around five years. This loan contract is best suited for small businesses that need the funds to expand, purchase better equipment, or maintain operating capital.
On the other hand, accounts receivable financing involves receiving payments in advance from future invoices. This loan structure is perfect for small businesses that carry a significant volume of account payable or in layman’s term, money owed to them by their customers.
Last but not least is lines of credit. Basically, it is funds set aside for rainy days. For example, when a business incurs a large gap in their cash flow or needs capital to maintain operations until the end of the month, they can tap into a line of credit to offset the financial imbalances.
Check if the Lender is Legit
Just as much as you get screened by banks and other lending firms whenever you apply for a loan, you should also be screening your prospects. Established lenders will use bank-level security protocols to guarantee safe online loan processing. Check the lender’s Better Business Bureau ranking as well as articles and blog posts that have been written about them by social media or trustworthy news organizations.
Focus on APR
When choosing between small business loans, it’s not enough to just consider the lowest interest rate or monthly payment plan. You also have to take into account the annual percentage rate. It’s the metric that indicates the actual cost of the money you are planning on borrowing. It varies from interest rates in that APR includes the commonly overlooked expenses attached to the contract including the monthly maintenance fees and processing fees.
Decide When to Secure Online Funding
Online loans may be considered godsend by many small businesses. However, it is not a great fit for everyone. For instance, if you need capital for your startup, microloans and crowdfunding campaigns are more ideal ways to procure the funds you need.
If, however, you don’t qualify for a bank loan, online funding from a stalwart company like Advance Funds Network can mean the continuity of your small business. On average, AFN can get your application approved in 2 hours or less. Every month, AFN successfully funds more than 350 businesses around the country, so you can be sure they are a legitimate source of capital.
It’s a totally different experience when applying for business funding online. Rather than face a bank representative, you come across a website with some questions that will be used to gauge your creditworthiness. It sounds intimidating, but it’s actually an easy process. You simply have to answer a nominal set of questions including how long your business has been operating in the US, your average gross revenue per month, and any outstanding credit you currently owe to other lenders or loans you’ve defaulted in the past.
Be wary of websites that ask too much information from you at the start of the application. Typically, you will only need to submit your name, business name, and contact details to get started.