Online Business Loans: Compare and Apply

By Sarah Brooks · May 22, 2024 · 11 minute read

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Online Business Loans: Compare and Apply

Online business loans can help you quickly get the funding you need for your small business. A variety of loan options are available for qualified borrowers, with competitive rates and terms, and fast funding times.

Keep reading to learn more about what online business loans are, how they work, the different types, and more.

What Is an Online Business Loan?

An online business loan may help small business owners secure funding quickly and easily without ever having to visit their local bank. Using systems that take creditworthiness, business performance, and other factors into account, many online lenders are able to quickly provide small business owners with funding options.

The application process is completed online and gives potential borrowers the opportunity to compare a range of financing choices that may work for their needs.

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Common Uses for Online Business Loans

Online business loan applicants are generally more likely to receive expedited funding even if they can’t obtain loans from banks or have bad credit. Online business funding can be used for common business-related expenses, including:

•  Working capital: Funds to help maintain short-term, daily business operations such as payroll, rent, marketing, and insurance. Working capital is the value of a business’ current assets minus current liabilities.

•  Equipment: Funds can help purchase items like office equipment, tools, vehicles, kitchen appliances, and more.

•  Inventory: Funds can help with stocking up on inventory either in preparation for a busy season or to capitalize on a good deal from a manufacturer or wholesaler.

•  Cash flow management: Having funds to maintain cash flow is crucial to running a business. Online loans can help small business owners manage their cash outflows without putting as much strain on business finances.

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Who Benefits from Online Business Loans?

Virtually any business can apply for business loans online and benefit from them, and there are many types of businesses that may be good candidates. These may include:

•  Small business startups: These businesses have a growth mindset but may not have the history or business credit to get approved for a bank loan. Startups can use online business loans to increase their chances of approval and get their business up and running.

•  Businesses with poor credit or no credit: Small businesses that don’t have enough credit history may not qualify for large bank loans. Additionally, a business with poor credit will often struggle to find adequate financing. Bad credit business loans from online small business lenders may offer the necessary financing needed to grow or start your operation, regardless of creditworthiness.

•  Businesses needing funds quickly: One of the biggest advantages of online business loans is their quick review and approval process. Bank loans can take weeks or even months to be approved, leaving businesses without necessary funding for extended periods of time. Online lenders can often approve and fund loans within days, and sometimes even within a few hours.

•  Businesses needing short-term financing: For businesses who don’t want to commit to a long-term business loan, online lenders also offer short-term financing, or loans that can be paid back in less than 18 months. Keep in mind that short-term financing typically comes with high APRs.

If you think your business may benefit from online business loans, it’s important to weigh the pros and cons of this type of financing. We’ll cover that next.

Bank Loans vs. Online Business Loans: What’s the Difference?

The biggest and most obvious difference between bank loans and online business loans are the lenders themselves. Bank loans are funded by traditional banks or credit unions and typically have to be applied for in-person. Online small business loans, on the other hand, are offered by a variety of financial technology companies and lenders, and can be applied for using an online application.

The convenience of getting an internet business loan can be very attractive, but like any financing, you must use caution.

To help you further understand how bank loans and online business loans differ, we’ll go over a few of the advantages and disadvantages to online funding in relation to traditional bank lending.

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Online Business Loan Advantages

•  Flexible: Online lenders typically go beyond traditional bank offerings, which include term loans, lines of credit, and credit cards. With online business loans, you likely have more flexibility with loan amounts, terms, qualifications, and loan products, including cash advances and peer-to-peer lending.

•  Fast: Compared to bank loans, online business loan applications typically require less paperwork and can be processed much faster due to technology.

•  Able to compare multiple options: With online lender comparison tools, you can compare different lending options matched to your qualifications and needs quickly and easily.

•  Readily available: Online business loans are available at various rates, terms, and conditions for businesses of any size and with various funding needs. No matter what your business needs and goals are, there’s likely an online lender who can help.

•  May be easier to qualify for: Compared to traditional banks, online small business lenders may be more likely to provide funding to medium- or high-risk applicants because they consider factors beyond credit score, like education, job history, and business revenue. It may also help that online lenders typically offer smaller loan amounts, which are less risky to them.

Online Business Loan Disadvantages

•  May be more expensive: Rates and fees for online business loans can be higher than those of bank loans, due in part to their greater accessibility. Generally, the riskier it is to lend to a borrower, the higher the interest rates and fees are.

•  Limited in-person interaction: Because they don’t have storefronts like traditional lenders (e.g. banks, credit unions), your face-to-face interaction with alternative lenders may be limited if possible at all. Some business owners may prefer the in-person interaction to build a relationship and trust with a potential lender.

•  Less established: Some online small business lenders could be small businesses themselves. Certain online lenders may not have the same financial stability or safety that traditional banks can offer.

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Types of Online Business Loans

Term Loans

Online lenders offer term loans for small business owners who need a fixed amount of funding. The borrower pays back the loan (plus interest) in installments over a specified repayment schedule. Lenders set interest rates and terms based on a borrower’s qualifications, loan amount, and other conditions.

Business Line of Credit

Online small business lenders offer business lines of credit, which can help maintain cash flow by covering small, short-term costs or unexpected expenses. Lenders approve a maximum amount from which you can draw from on a revolving basis, with interest only charged on unpaid balances. Even though business lines of credit are similar to business credit cards, they often offer cash advances in higher amounts and with lower rates.

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Equipment Financing

Equipment financing is a type of small business loan for purchasing necessary business-related supplies and machinery. They are typically short- to medium-term loans that are paid off within a few years. The equipment acts as collateral on the loan, so they can be relatively low-risk for lenders.

Inventory Financing

Inventory financing is an asset-based term loan or line of credit that a business receives in order to purchase more inventory, maintain cash flow, or support working capital. Usually, the inventory being purchased acts as collateral for the loan. The borrower then uses the revenue from selling the inventory to pay back the loan or line of credit.

Invoice Factoring or Financing

Invoice factoring involves selling your invoices to a factoring company who then collects payment from your customers. With invoice financing, you use unpaid invoices as collateral to receive cash from a lender. Invoice factoring and financing can both be helpful financing options for small B2B businesses that deal regularly with invoices or irregular payment schedules.

Peer-to-Peer (P2P) Lending

Another category of online business loans is peer-to-peer (P2P) lending. P2P lending networks match borrowers directly with individual investors, cutting out the financial institution “middle man.” Loan applicants and lenders create profiles on P2P websites, where they can search for funding and causes that match their preferences.

SBA Loans

SBA loans are guaranteed by the U.S. Small Business Administration, making them low-risk and highly sought-after lending options. Their most popular options are the 7(a) loan programs, which offer short- and long-term financing. Since these are government-backed, they typically take longer to be approved and may have stricter eligibility requirements than non-SBA loans.

Merchant Cash Advance

A merchant cash advance allows small businesses (“merchants”) to get a cash advance in return for a portion of their future sales or receivables. As such, these aren’t technically loans because the merchant only makes payments on what they sell, as opposed to on a set repayment schedule.

Tips for Selecting the Right Online Lender

While many online lenders are trustworthy, you are still sharing personal, business, and financial information that you want to make sure is being used responsibly. Additionally, you want assurance that you will be treated fairly throughout the online business loan process. The following tips may help you decipher which online lenders are the most credible.

•  Make sure they are registered in your state: All lenders are required to register to do business in their respective states. Contact your state attorney general’s office or banking/financial regulation department to confirm the lender you’re considering is legitimate.

•  Look for well-known lenders: A good place to begin your search is with lenders you’ve heard of and who come highly recommended. Their reliance on reputation often leads to more credible practices.

•  Read their Better Business Bureau (BBB) rating: Whether you’re familiar with a lender or not, it’s a good idea to check their BBB rating before applying for a business loan online. You can view any past complaints and get a good idea of what their reputation is.

•  Read customer reviews: Customer and expert reviews can be a great resource when you’re comparing online lenders. If you’re trying to choose between similar lenders, lender reviews may help you come to a final decision.

•  Check for media presence: Check if the lender has received media attention in the past, and if so, what it was for. If an online small business lender receives repeated bad press, it may be wise to search for another.

•  Do they support the Small Business Borrowers’ Bill of Rights?: Some lenders choose to abide by the Small Business Borrowers’ Bill of Rights. You can check if a lender is a signatory to see if they ascribe to these fair lending practices.

Possible Red Flags

If you come across an online lender that seems too good to be true, your instincts might be right. Here are a few red flags to be aware of when you’re comparing small business lenders online:

•  They don’t ask for your credit history: Very rarely will you come across a potential lender who doesn’t ask for your personal and/or business credit scores during the application process.

•  They offer you a loan over the phone: It’s illegal for lenders to do business (offer loans or credit and ask you to pay for it) over the phone.

•  Their name is deceivingly similar to that of another lender: Scam lenders may try to confuse applicants by using copy-cat names that sound similar to legitimate online lenders.

•  They tell you to pay via money order or wire transfer: It can be difficult to track and recoup money transferred via wire or money order, which make these preferred payment methods for illegitimate lenders.

•  They tell you to pay an individual: Trustworthy lenders will not ask you to pay an individual person. You should be making payments to the lending institution. Even in the case of P2P loans, the payments are done through the lending network provider.

How to Apply for an Online Business Loan

One of the many benefits of online business loans is how easy it is to apply. Depending on the type of financing and lender, you can apply in as little as a few minutes.

Typically, you’ll answer a few questions about yourself and your business, and then a soft credit check will be run by the lender. If you prequalify, you’ll submit the required paperwork, the lender will run a hard credit check, and you’ll receive a lending decision within a few hours up to a few days.

You may be asked to submit the following documents:

•  Personal and business credit ratings

•  Personal and business tax returns for the previous 1 to 2 years

•  Business bank account statements

•  Profit and loss statements

•  Identifying documents like a government issued ID

It’s a good idea to have these documents handy in case you want to move forward with the loan. If you are fully approved for the loan, you should receive funding within a few business days. Some lenders even offer same-day funding*.

The Takeaway

Online business loans are simply small business loans you get through an online lender (as opposed to a bank or credit union). Because everything’s done online, approval is often instantaneous and funding can take place within 24 hours* of loan approval with certain lenders. As with any type of financing, though, it’s always best to shop around so you can find the best rate and terms for your situation.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.


How do online business loans work?

Online business loans work similarly to business loans from a bank, except everything is done online. You’ll get prequalified, apply, and submit the required documentation via your computer. Online business loans are typically fast, and approval can happen instantly. From there, funds can be disbursed in as little as one business day depending on the lender.

Can you get a business loan for an online business?

Yes, it is possible to get a business loan for an online business. As long as your business meets the qualification requirements of the lender, it does not matter whether your business is based in an office or on the internet.

What is the fastest way to borrow money to start a business?

The fastest ways to borrow money to start a business include startup business loans, online business loans, online personal loans, and borrowing money from a friend or family member.

Can you get an online business loan with a 500 credit score?

While it can be tougher to get an online business loan with a low credit score, it’s not impossible. There are online lenders that specialize in bad credit business loans. Keep in mind, though, that you’ll usually receive a higher interest rate if your credit profile isn’t strong, as that makes the loan more risky for the lender.

Photo credit: iStock/shapecharge

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Small Business Loans
*Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. This funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank's ability to clear a transfer and make funds available.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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