Online Business Loans – What Are They and How Can They Help?

By definition, an online business loan is a loan that can be acquired by dealing with a financial institution online without visiting a branch. The loan application is completed online instead of submitting hard copies at a bank branch. Through a streamlined process, a borrower’s finances are evaluated safely and securely online. If approved, the funds can be disbursed quickly. Brief phone discussions are sometimes required to clarify the information provided.

Online business loans have been growing in popularity for many good reasons. After the Global Financial Crisis (GFC), regulatory reforms re-priced risk upwards and made it much less appealing for banks to make loans to SMEs. Given the gap in the market, innovative financial technology companies (fintechs) stepped in and created new ways to lend to SMEs. Starting in 2013, a few lenders began leveraging technology to streamline online business loans to SMEs. Also known as balance sheet lenders, these companies look at bank records and online accounting systems to determine a company’s risk and ability to repay a loan.

In addition, balance sheet lenders look at business data, credit reports and other factors to make a lending decision.  Lenders such as Moula have streamlined the process to a point where they can make a decision within 24 hours and immediately transfer funds when the loan is approved.

As authorised deposit-taking institutions (ADI), banks have risk-based limitations that prevent them from making loans to SMEs, which make up 97% of Australian businesses. This is backed by research which has shown that banks rejected 74% of business loan applications in 2017.

As fintechs were able to step in and meet the financial needs of SMEs, online business loans began to grow exponentially. According to KPMG, alternative balance sheet lenders began by making $10 million in loans in 2013. By 2017, the dollar amount of online business loans grew to $389 million, a 79% compounded annual growth rate. 

Online business loans have given SMEs access to short-term business finance that they can use for a range of purposes. These include boosting cash flow, purchasing additional stock, buying new equipment or funding marketing campaigns. The funds can be used for equipment finance, to boost working capital, or pay off business credit cards. If you are seeking business finance, use our Business Loan Calculator to get a repayment schedule and amount based on a range of potential interest rates.

People often ask, ‘What’s the difference between bank business loans and online business loans?’

With a bank business loan, you’re required to complete a lot of paperwork. The application process can include providing a business plan, bank statements, revenue statements, balance sheets and business and personal tax returns. After you submit all this, it can take six to eight weeks to receive an answer. So it’s not practical if you need funds quickly.

For online business loans, you provide safe and secure access to your bank account data. This is analysed in relation to the amount of funding you are seeking. In addition, the lender will look at your credit score. Based on the analysis, you will usually get an answer within 24 hours or the next business day if applying for a loan on Friday.

By definition, an online business loan is a business loan that can be applied for online and does not require visiting a physical location, such as a bank branch. Although short phone discussions are needed to confirm your information, most of the application process is completed online. This includes the borrower completing the application and the lender analysing online data to determine loan approval. With online business loans, the approval process is very quick. With Moula, for example, you will get an answer within 24 hours of providing the necessary information.

Given the big difference between dealing with banks and the new breed of alternative lenders, there’s no doubt that a growing number of small-to-medium businesses will continue to get online business loans for their business finance needs.

Small business owners have seen a tightening of credit when they apply for a business loan. In the past, many businesses would secure a business loan amount using residential property. As a result of falling housing prices, some banks won’t accept residential property as collateral for a small business loan. One example is ING Bank which will no longer secure new business loans with residential property. Other banks have been looking at loan to value ratios of current loans secured by residential property. They have suggested that businesses with current loans in place might need to find new finance if the value of their residential property continues to fall. This has caused distress for business owners who have loans secured by the value of their homes.

If you decide to pursue business lending online, you have a number of options available. With Moula, for example, the application takes around ten minutes to complete. Based on the information you provide, plus a safe and secure analysis of your business’s data, we will determine if you qualify for the loan and what the interest rate will be. If approved, you will receive the funds by the next business day.

If you’re still considering your options, read The Complete Guide to Business Loans in Australia. You can also get an estimate of principal and interest repayments by using our business loan calculator.