If you’re looking for a loan, you’re not limited to banks and credit unions anymore. While both of those types of financial institutions are still a good loan choice if you can qualify, there are plenty of online lenders available, as well. The lender you choose will depend on the type of loan you need and your financial situation. Here are the most popular online lending options and what you can use them for:
Loans Through an Online Lender
These are the most similar option to a loan from a bank or credit union, and you can get a personal loan or a business loan. The process is very similar, except you’re applying for the loan online instead of in person at a branch. The lender processes your application, chooses whether to approve you for a loan and, if you’re approved, sets an annual percentage rate (APR).
Most online lenders allow you to fill out an application and see the APR you could get with them while only going through a soft credit check. This allows you to compare your options without affecting your credit score before making a final decision. Once you’ve chosen a lender, you’ll go through another application, at which point the lender will run a hard credit check on you.
Peer to Peer Loans
You can also get personal loans or business loans with peer to peer loans. The application process is the same as it would be with an online loan. You can still check your APR without going through a hard credit check. The difference is who finances your loan. Instead of an online financial institution financing it, investors can choose to fund your loan on a peer to peer lending marketplace. After you finish your application, the peer to peer lending site puts your loan request on their marketplace where lenders can see it.
Invoice Loans
An invoice loan is only available to businesses because you’re getting a loan on the value of your unpaid invoices. If you have outstanding invoices from your clients, you can get most of the money early through an invoice loan. The lender pays you a set amount, such as 85 percent of your outstanding invoices. You then turn those invoices over to the lender and they collect on them.
One thing to keep in mind with this type of lending is that your customers will know that you’ve used an invoice lender because it will be a different company than your own collecting on your invoices. It’s up to you whether you feel this impacts the image of your business.
Revenue Based Financing
A revenue-based loan is another type of loan that is only available to businesses because you’re getting a loan and paying it back through a percentage of your business’s revenue every month. Instead of having a loan for a set term, you have the loan until you hit the repayment target, which is usually between 150 to 250 percent of the loan amount.
This type of loan provides more flexibility regarding your payments since they’re a percentage of your revenue. If your business is doing well, the payment will be higher ad this will be a more short term loan, but if revenues take a hit, you won’t pay as much. This makes revenue based financing less risky than a traditional loan, where you would need to pay the same amount regardless of how well your business is doing. For that lower risk, you usually end up paying more.
The best thing to do if you’re looking for a loan is to figure out what type of loan you need, and then apply with a few lenders to see what your options are and how much APR you can expect to pay. You have the ability to shop around, so take full advantage and find yourself the best deal.