Term Loan or Line of Credit: Which is a Better Fit for Your Business?

Online lending is any loan that is not considered to be a loan from a traditional bank. Most financial entities are considered an “online institution” because they offer a financial alternative to a traditional bank loan. In the past, this term has been used to describe a variety of different institutions including credit unions, government loans, and other forms of credit that is similarly structured to a bank loan but is not coming from a traditional brick and mortar bank.

All of these older-style loans today are part of a traditional market. Most still work by the same terms and conditions that have applied before. Most also still require the same criteria to become approved including the following:

  • Have come from institutions that are not part of the traditional financial industry.
  • Have a variety of different methods of communication which they use with their clients.
  • Have base rates and approval systems that rely on things besides the traditional FICO score and other similar measurements.
  • Have different approval processes.

These provide some noticeable advantages for certain segments of the population including:

  • Providing more options and varied choices for small businesses.
  • A mainstream process that allows people faster access to the funds and loans they need.
  • Make loans more accessible to those with less-than-stellar payment records or credit histories.
  • Allows smaller institutions to make loans and provide more options for customers to choose who to borrow from.

Online lending is the virtual “catchall” for everything that doesn’t include traditional brick-and-mortar banks and lending agencies. Some of these “online” banking models include:

  • Lines of credit
  • Peer-to-peer programs
  • Factoring
  • Merchant cash advances
  • Working capital loans

There are a variety of different methods such as those listed above (and others) that will work best for different kinds of businesses. However, it’s vital that businesses understand the types of loans that work best for them and the ones which they should steer clear from in order to have the best lending options possible for their company.

Moreover, businesses have to be aware of the day and age we live in of identity theft, cybercriminals, scams, and other misleading ads on the internet. It can make it very confusing to know which online lenders are reputable and which you should steer clear of. The following are some great tips to help determine if online lenders are safe to use:

  • Find a physical address for the business. Even if their company is online most legitimate businesses and companies will have some sort of physical address or place where they operate and do business from.
  • Get third-party verifications that the lender is reputable and legitimate. Such agencies that are reputable are those such as the Better Business Bureau (BBB).
  • Scour the internet for other business owner’s reviews to ensure that they are meeting customers expectations and that they offer quality services before using them for your own personal needs.
  • Check to see how long the site has been around, who owns it, what its reputation is, etc. and it will give you an insight into the industry and what their background is. Moreover, you will be able to tell if they are reputable or not.
  • Be wary of people who gather money but provide no real working capital or loan for your business in return. Start at the site of an actual lender and not the site of a gatherer to ensure you are working with a legitimate agency and not just a gatherer seeking to rip you off of your hard-earned money.

Legitimate online lenders and financial institutions can provide an excellent alternative to traditional bank loans. They can allow the small businesses that are just looking to get off the ground to get the funding they need to start off and expand their businesses. Just be sure to do your due diligence to make sure you are working with legitimate agencies and not online hackers and scammers looking to take your hard-earned money while giving nothing in return.

For more information about getting a loan that can help your small business please feel free to contact Nelson Capital to learn how you can get loans that will help your small business get up off the ground and growing.

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