When you are looking for business finance but could really do without the long wait and uncertain outcome of an application to your high street bank, online business loans may offer an alternative way forward.
The growth in online business loans providers has mushroomed in recent years. What is the reason for that appeal and are there distinctions that might concern you before choosing one provider over another?
- the attraction of an online business loan is clear. Information about the loans, cost, repayment terms, and application procedures are always at your fingertips.
- if you need help or have questions about the loans or the application process, telephone backup is also invariably offered.
- typically, you receive a preliminary indication of acceptance in principle for your proposed borrowing and this may be followed up by your formal application. At that stage, more needs to be known about your company and the reliability and strength of your revenue streams.
- if the formal application is approved, however, the requested funds may be transferred directly to your company bank account within a matter of days – and, in some cases, as quickly as 48 hours.
- when comparing the online business loans offered, you might want to be aware of the essential differences between two different kinds of lender when it comes to online business loans:
Balance sheet lenders
- balance sheet lenders are in the business of lending their own money;
- they assume all the risks of a lender – principally, the losses incurred through borrowers defaulting on their debts;
- although the primary example of balance sheet lenders are banks, alternative new providers are the innovators of online business loans;
- they do not involve the submission of complicated business plans or cashflow projections, simply a few questions about the status and financial health of your company;
- decisions are made quickly, with a decision in principle typically given online within a minute or two of your enquiry;
- if your formal application is approved, you may expect to receive the funds within 48 hours of that decision;
- although each lender differs, of course, loans of between £5,000 and £100,000 are typically available – unsecured, at a fixed rate of interest, and generally repayable within just 12 months;
Peer to peer lenders
- you might want to distinguish balance sheet lenders from so-called peer to peer lenders, who have also been making their presence felt in the market for online business loans;
- peer to peer lenders are called that because they are effectively “matchmakers”, bringing together individuals and organisations looking to pool their investments and savings with those companies looking to borrow;
- once matched, the lender bears none of the risks carried by investors, savers and borrowers individually;
- the financial regulator, the Financial Conduct Authority (FCA) has expressed some concern about the apparent lack of transparency in which some peer to peer lenders operate;
- this has resulted in the FCA imposing tighter controls of the activities of this market – as reported by the Financial Times on the 27th of July 2018.
When you are next looking for online business loans, therefore, you might want to distinguish between balance sheet lenders and peer to peer lenders for greater certainty about the transparency with which each operates.