Airbnb, Uber -- Now: The Rise of Online Lending | HostGator Blog

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Airbnb, Uber — Now: The Rise of Online Lending

Tuesday, August 23, 2016 by

Online Lending

Cash flow. It’s the #1 priority for any business owner.

We can (and should) talk about passion, leadership, and full-stack/content/social marketing, but at the end of the day (and Shark Tank’s Mr. Wonderful would concur), cash is king.

In the past, if you needed a loan for your business, you had to go to a bank. You had to dress up in your best suit, provide a ton of records, and go through an arduous application process.

And after all that, there was no guarantee you’d be approved. It was stressful, tedious, and frustrating. Now there’s a faster, easier way to get the funding your small business needs. In a sense, it’s an Uber for lending.

 

Wait, There’s an Uber for Borrowing Funds?

With online lending, you not only don’t have to go to a bank to get a loan, you don’t even need to leave your house! Instead of putting on your best suit, you can apply for a loan in your footie pajamas. (We don’t judge.) And your chances of approval are based on the health of your business rather than just your personal credit score.

 

How Does Online Lending Work?

Online lending lets you apply for a small business loan in just a few minutes with a few keystrokes (or taps on your phone). You’ll be spared the long wait to see if you’ve been approved, as most applicants hear back within minutes to just a couple of days. You could have access to the money your business needs as soon as the same day.

Online lending has exploded in the last decade as nimble upstarts, armed with the insights of data and unburdened by the capital requirements of traditional banks, aim to disrupt lending the same way Uber has disrupted transportation and Airbnb has given hotels a run for their money.

 

But What’s Wrong with Traditional Banks?

Following the financial crisis, many risk-shy banks seriously cut back on their small business loans. Regulations designed to rein in the excesses of the subprime mortgage bubble further contributed to the crunch. According to Biz2Credit, only about 17% of small business loan applications are approved by big banks.

That’s less than a one-in-five shot for any business owner needing an infusion of cash.

 

Online Lenders Save Small Businesses

Enter online lending, which, as an industry, has doubled in size every year since 2010. By 2014, it accounted for more than $12 billion in loans. While that’s just a growing slice of the lending pie, these new lenders are eager to expand to serve increasing numbers of customers.

The loans (and lines of credit) given out by these companies can range from as little as $2,000 to as much as $100,000 and beyond. The terms of the loans can range from six months to several years. Interest rates vary, and some companies, like Kabbage, don’t charge interest in the traditional sense; rather, they assess a monthly fee, usually a small percentage of your principal, when you qualify.

The application and approval process is also different for online lenders. Rather than require stacks of financial records, they review your business accounts, like PayPal QuickBooks, or a business checking account. They use technology to analyze your cash flow and give you a decision in just minutes. 

Like with any source of funding, there are risks to online lending: Any business should be careful to invest funds in things that will provide a return and should only borrow what they can pay back. But used wisely, they can be an indispensable tool as you build your business from the ground up.

Find out how much working capital you qualify for at Kabbage. HostGator is currently giving away $100 Amazon* gift cards to those with approved applications.

 

*Customer will receive a $100 Amazon gift card upon submitting a qualified application to Kabbage by 11:59pm EST September 6, 2016 through the link provided in this post. The gift card promotion is being run by Endurance International Group. Gift cards will be delivered to qualified customers electronically October 6, 2016. Amazon is a trademark of Amazon Technologies, Inc. Amazon is in no way affiliated with or a sponsor of this promotion.

Henry Green is a freelance writer based in Austin, Texas who helps small businesses and entrepreneurs improve their online presence through marketing, social media, and website optimization.
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