Should You Get a Business Loan from a Bank or Online Lender?

Rear view of a thoughtful well dressed businessman scratching his head.

When you are in a business, you may find yourself in a position where you need money to keep your business running. Businesses need owners that have perseverance and be willing to take some calculated risks. As a business owner, you have to understand that you have to take some risks with a possibility that it might not work out. When you take the leap to start a business, you are not likely to give up on your dream easily, so you may need some help to get you through the tough times. When you are considering a business loan, you have to make a choice between a bank or an online lender. Each one offers you something slightly different. It is important that you understand the details of those differences so you can make the best choice for your business. Continue reading to find out more about business loans.

Bank or Online Lender for Your Business Loan?

You can get a loan from a traditional bank or online lender. More recently, online lenders have been on the rise as they are gaining more respect in the lending world. The company’s credit is one of the determining factors for the lender to approve a loan. There are other factors, as well, such as how long a company has been in business, the financial status of the company and if they have any collateral. There are many reasons why you might need a business loan, regardless if you use a bank or online lender. You can use a loan to purchase equipment, stock equipment, or working capital. Some loans are riskier than others, which may mean you have a higher interest rate.

What Is A Business Loan?

A business loan is similar to a personal loan, except that it is intended for business purposes. The basic gist of a business loan is as a business, you borrow money from a lender. You make a promise to repay the money you borrow with regular, usually monthly, payments. The lender adds interest to the amount of money you borrow as a fee for allowing you to borrow the money. The amount of interest a lender charges you is directly related to your credit score. Business loans come from different lenders and can often be in larger amounts than personal loans. As with personal loans, business loans can be secured or unsecured. A secured loan means that you need collateral to back up the loan. Typical business loan terms can vary greatly from less than a year to up to 3o years depending on the loan type and lender.

Difference Between Banks Vs Online Lenders?

One of the major differences between a traditional bank and an online lender is the actual building. Traditional banks have brick and mortar buildings where you have to go to transact business. Some traditional lenders offer an online banking feature, but they still have physical locations. Online lenders, on the other hand, do not have an actual building that you can enter to handle your business. You handle all of your business online via your computer. Online lenders offer options such as specific types of short term business loans. Typically, you will not find those types of business loans with a traditional banker. They offer the most traditional loans.

Pros and Cons of Going to The Bank

In your decision between a traditional bank or online lender, you have to look at both sides. If you have an established relationship with a bank, they may be a little more willing to work with you than a lender that has no relationship.

Bank Advantages

A traditional bank gives you a more personal interaction where you feel like you are important to the bank and not just a number. When dealing with a bank, you have an actual person with whom you can interact. When you have questions or concerns, you have someone to whom you can turn.

A traditional lender may be able to offer you a lower interest rate to offset the slight inconvenience you have from actually going into the building. A traditional bank may have some more options to offer. They may be able to give you a loan different from you intended but works better for you. Traditional banks often have more products, so you can do a wide variety of business all in the same place. You can work on establishing a relationship if you do not already have one. With a traditional bank, you may have access to a network of ATMs as well as branches no matter where you are.

Bank Disadvantages

As with anything, there are downsides to taking on a business loan. It does not matter if you choose a bank or online lender, some of the downsides remain the same. You are taking on more debt, which means you need to pay it back. A loan is not a gift and you must pay it back timely. Even if your business fails, you still owe the money and have to pay it back. Taking on more debt increases your debt to income ratio. This could show up as your personal debt (depending on how your business is set up). That means it could impact your credit score and your debt to income ratio. Even if you are able to pay back the loan, It still has a temporary negative impact. You may not be able to borrow enough money.

Depending on how much money you can borrow, you have to make sure it is enough to cover your needs. If you can only borrow a portion of what you actually need, that might hurt you more than helping you in the long run.

In addition to taking on more debt, there are some of the downsides to using a traditional bank for your loan option. While some banks may have different products to offer you, not all of them do. Some banks are not able to offer competitive rates or fees and are limited in the products they can offer to you. Some banks require you to have an account with them before they will approve a loan, so that means you have to open a bank account with them. Many of the big banks do not offer a high-interest return on their savings accounts.

Pros and Cons of Online Lenders

As you can see so far, on the surface there is not a stark difference between a bank or online lender. Bank or online lender, both of them have positive and negative sides. Online lenders are more willing to provide you a loan than a traditional bank if you are new in the business world. So, if you have a startup business and some ideas and you are willing to take the risk, maybe you should consider an online lender before the traditional bank.

Online Lender Advantages

There are some benefits when selecting an online lender. The most obvious benefit is that you can apply for a loan from the comfort of your own home or office. It is fast and efficient. Many business owners do not have a lot of extra time to spare filling out paperwork. Online applications are easy and can usually be completed in minutes. The response time from an online lender is also fast. They tend to have more flexible terms. Usually, an online lender only lends money, so they want to give you a loan. They are often more willing to work with you even when your credit and business history is a little shaky.

Online lenders tend to be a little more willing to take a risk on a business owner. That may not be something that you find in a traditional bank. They may be so far removed from what it is like to be a small business owner and they just are not willing to take the risk. You should shop around to see where you can find the best loan for you, but do not overlook online lenders. You may want to check them our first since you do not have to go anywhere but the internet to find out some basic information.

Online Lenders Disadvantages

One of the downsides of online lenders is that you do not receive the same type of customer service that you get from a traditional bank. The only type of customer service you receive via the phone, chat, or email. In general, the customer service is less personalized with an online lender. Transactions with an online bank take more time than a traditional bank when it comes to deposits. Depending on the online bank that you are using, there may be limited ways for you to make deposits. You may only be able to use their mobile app to make deposits and then have to wait days before the transaction posts to your account.

If the online bank that you choose does not have a large network of ATMs, you may find yourself having to use whatever ATM you can access quickly. As a result, you may face high fees at the ATM that you must use. If you do not like to use the internet, then online banking may not be the best option for you.

Key Points

At some point as a business owner, you may find yourself in need of a business loan. There are numerous options available to you, but your needs may dictate whether you choose a traditional lender or an online lender. If you are looking for a personal touch and many branches available to you with your loan experience, then a traditional lender is the best choice for you. If you are looking for the ability to handle as much of your business on your own through a website and never have to interact with a person, then an online lender is your best bet.

You may be able to find a wider range of options through an online lender, whereas a traditional bank may only be able to give you one possible option. If you want more options for your business, an online lender may be the best way for you to go. As a business owner, you have to determine what is most important to you right now. Do you need access to the money right away? Do you need the ability to speak to someone? Or are you looking for more than one option from which to choose? However, you answer those questions that can guide you towards which lender may be the right one for you.

Which Loan Is Best For My Business?

If you have a young business that has been in operation for just a few years and you only need a small amount of money for your business, an online lender is your best bet. Traditional banks do not like to lend money to businesses that do not have a solid history. They prefer businesses that are well established and have a proven track record for making money. They do not want to take the risk that comes with a young business. An online lender is best for your business if it is different and unique. A business that is different and does not fit a set business model tends to scare traditional banks because they pose a greater risk. If this is the type of business you have, you may have a difficult time finding a bank that is going to approve you for a loan.

If you are a seasonal business and you need to restock before the new season starts, but you do not have any cash. You need to buy stock to have a product to sell so that you can make money. It is a common problem for small businesses. An online lender is most likely the best option for you if you find yourself in that position.

If you have a well-established business and you are in need of a large amount of money because you need to move to a new space or buy a large and expensive piece of equipment, then a traditional lender is going to be your best bet. Most likely, you are going to find the best rates and the largest amount of money to borrow from a traditional bank.


Truthfully, while this article contains a lot of information about the differences between a traditional bank and an online lender, I hope this article has taught you that a traditional bank or online lender may not always be the right lender for you. It may not matter where the lender is, or if the lender has an actual building. What matters is where can you get the best loan to meet your needs. As your business grows, your needs change and the lender that is right for you may change, too.

Today, a traditional bank may be the right one, but in ten years, it might be an online lender. Do not make the choice between a traditional bank or an online lender without doing research. You need to find out all the information you can about the loans available to you before you make a final decision about which one is the right one for you. As a business owner, your needs are going to change over time. You do not want to box yourself into one type of lending option for the entire length of operation for your business. Understand that as your business needs change, so will the banking option that is right for you.