With the onset of the digital revolution, applying for loans has changed tremendously in recent times. After the government launched Digital India.
And began extensively promoting online activities through e-KYC and UPI, the use of online platforms has been further boosted.
Very few people now choose to seek business loans the traditional way, by visiting physical banks and NBFC offices. The COVID-19 lockdown made online business loans even more popular and preferable.
Business loan applications have become more convenient and faster through online platforms. Most banks and NBFCs have started e-KYC to help borrowers apply conveniently on websites and applications, through digital devices such as smartphones, laptops, PCs and tablets.
If you are searching for a business loan and do not wish to go through the ordeal of visiting bank branches, undertaking lengthy paperwork and waiting for weeks to get the loan processed, online business loans are ideal for you.
You May Read: Apply for USDA Loans
Read on to know more about what online business loans are and their pros and cons.
What is an Online Business Loan?
As the name suggests, this is a business loan available through online platforms, including websites and web applications. Online business loans can be used to establish a new venture, expand an existing business, and renovate the official space, among other things.
One of the most unique features of this type of loan is its accessibility from almost anywhere on the planet, where the internet is available.
Types of Online Business Loans
Business Line of Credit
Lenders provide a credit limit, and you are at liberty to use any amount for any number of times within that limit. There is no monitoring on the type of spending. The interest is charged only on the amount used and not the eligible line of credit.
Term loans function as traditional bank loans. Banks and NBFCs lend the money, and the borrower payback is calculated in monthly installments within a specified loan tenure.
Financing for Invoice
Businesses apply for payment on invoice amount, and lenders disburse a certain percentage of the invoice that the borrower repays with a fee within a predetermined time period.
This is a kind of collateral-based business loan. You can buy equipment and office products such as dump trucks, cranes and computers, among other such things. The lender keeps authorization of the equipment to themselves during the loan tenure. They retain full authority to auction or sell off equipment or the products to retrieve their loan amount in the event of loan repayment default.
Merchant Cash advance
Disbursed within 48 to 72 hours, it is the cash support provided to businesses for their immediate requirement.
You May Read: How USDA Business Loans Have Become the Better Option
The Pros of Online Business Loans
If your internet bandwidth and network are reliable, your online business loan application can be completed within a couple of minutes. All banks and NBFCs have a dedicated IT cell to help make the online loan process faster and safer.
With the help of the instant approval option, available at some of the leading banks, you can get the business loan amount approved and credited to your account within minutes to a couple of days, depending upon the lender, your profile, and the eligibility criteria. Instant approval has been made possible through the introduction of e-KYC and AI and ML based web applications.
Flexible Business Loan Requirements
Lenders keep a flexible approach when providing online business loans. At times they even look past bad credit scores and lend you the required loan, if they find your business proof, plan for break-even and prospects satisfactory.
Pre-Approved Online Business Loans
Usually, pre-approved business loans are offered to existing customers by banks and financial institutions that want to sell and promote their financial products. You will need to answer a few questions, and if you qualify, will receive the pre-approved business loan. As you are already an existing customer, pre-approved business loans need minimum documentation and verification.
Online platforms have opened multiple avenues for business loan borrowers. They can browse and choose from banks, credit unions, NBFCs, government schemes, etc.
Most online business loans do not need collateral and security and you get financial assistance without pledging anything.
We live in a “Glocal Village” where all you need is the internet and a digital device to get connected with any part of the world. The same applies to an online business loan. You can log in from your device, apply, get instant approval, and the amount will be disbursed into your account, irrespective of your physical location.
You May Read: Equipment Finance Options – Your Complete Guide
The Cons of Online Business Loans
Conflict of Traditional and Online Medium
In India, digital literacy is still very low, and a vast majority of people are not comfortable with everything online. They still prefer visiting the physical bank branches, applying for loans using physical forms and submitting the required documents. Online medium is not the first choice for the majority of Indians.
No Personalised Relationship
Since the COVID-19 pandemic began, we have been doing most things online. Regular virtual meetings, interviews, and all types of communication have led to a global discussion on this online work model as the virtual world lacks a personal touch.
When we visit a bank or a financial institution’s branch for a business loan application, we build a relationship with the loan officer, which does not happen online. At times, this rapport also helps in getting a good deal on the loan requested, which too is harder when the discussion is being conducted virtually.
You May Read: Ways COVID-19 Alert System Helps Overcome the Crisis
While applying for a business loan, borrowers submit their personal and financial details online, including business-related documents, certificates, and other important papers.
With the online business loan process, cyber security is a significant concern. Most lenders use blockchain technology for multi-layered security to protect your information.
Online business loans are a great option to fund your business requirements faster and in a safer manner. Do thorough research on the business loans offered by different financial institutions and get the monetary help you need to boost your business, now.