Is an Online Business Loan Right for Your Company? Pros and Cons

In the present age of digital technology, funding options that are fast, adaptable, and manageable are what many companies in India are chasing. One of these options is online business loan, which have attracted lots of small enterprises and startups. But is it the best option for your company? 

This article looks into the advantages and disadvantages of online business loans thereby helping you know whether they will suit your needs.

What’s an Online Business Loan?

Various lenders like banks, non-banking financial companies (NBFCs), and fintech companies may provide an online business loan as any other type of financial product. The processing and approval of these loans take place through digital platforms making the borrowing process faster and more efficient compared to traditional loans. 

You can get an online business loan without visiting the lender’s branch, at least saving time and physical energy. Such online loans could be an attractive funding solution for small businesses in India, particularly those pursuing MSME business ideas.

Pros of an Online Business Loan:

1. Quick and easy application process

The primary advantage of these loans is their simplicity of application. Traditional loan applications may take weeks to be processed; however, for online loans approvals can be obtained within 24 to 72 hours. Besides just having an internet connection, which is a requirement during submission periods, the process usually involves a few steps.

2. Less paperwork

On the other hand unlike in formal financing requests where you may be required to bring a pile of documents, online business loans entail submission of few papers. If one satisfies the criteria set, simple things such as his/her company accounts, financial statements, or any other evidence showing his/her identity, like a driver's license, can be used while doing this.

3. Flexible loan amounts and terms

The amount of money lent through internet channels varies from 50,000 rupees to 50 lakh rupees, depending upon the nature & size of operations being undertaken by the borrower’s firm. Hence, one is at liberty to pick any sum provided by this range according to the requirement. Repayments are also moderately flexible – ranging between six months to five years.

4. No collateral required

Several online credit facilities do not demand any security from their holders such as an asset identification number which represents collateral ownership, thus making life easier for investors who have limited dealings or at the onset of their businesses.

5. Access to working capital

For growing your business, an online loan can provide you with the working capital you require. This could be money for more stock, hiring new staff, or even expanding operations. Cash flow challenges can be adequately addressed through such facilities.

Cons of an Online Business Loan:

1. Higher interest rates

Despite the convenience it offers, online loans may charge more compared to what traditional banks can extend as credit lines. It depends on lending institutions but interest usually varies at around 15% to 30% per annum which puts strain on your pockets.

2. Short repayment periods

Although repayment terms are flexible, many online loans come with shorter repayment periods. This means you’ll have to pay back the loan quicker, which could affect your cash flow, especially if your business doesn’t have steady revenue yet.

3. Risk of overborrowing

Businesses may borrow beyond their needs due to the ease of access to online business loans. Consequently, this may result in unnecessary debts and financial distress especially when it becomes challenging to repay them.

4. Limited loan amounts for new businesses

New ventures and companies with no established credit history might find it hard to secure significant borrowing limits. For instance, many financial institutions impose stringent limits on the amount lent to businesses without records hence affecting your chances of increasing funds for expansion purposes.

Should your company get an online business loan?

To determine if an online business loan is the best option for your company, consider these key points:

• Do you need money quickly?

• If your business needs immediate funds for cash flow or seizing opportunities, an online credit facility can avail the funds very soon.

• Do you want a less risky loan?

• Companies that lack assets needed as securities may go for unsecured loans. The rate of interest charged and terms of repayment should be taken into account.

• Is repayment affordable?

• Consider whether you can pay back this loan comfortably without affecting any other operations within the firm because these types usually come at high rates.

The bottom line

For the rapid growth of your business by quick funds together with a well-laid-out repayment plan, an online business loan is worth considering. Nevertheless, it is important to evaluate this option carefully against its disadvantages before opting for it. 

For people who intend to start a small business or explore MSME business ideas, costs, conditions of eligibility, and repayment terms need to be critically considered. Choose a loan that meets your needs and is within your repayment means so that you can be stress-free at all times in the future.

If you are wondering whether an online business loan is the best option for your company, it is always good to take time and consult with a financial advisor who will help you make an informed choice.