New up-and-coming lenders shaking up the business loan scene
If you’re a small business owner searching for some extra funding, you don’t want to wind up saddled with a loan and an interest rate that will send your business under instead, do you? Of course not! You want an affordable source of cash and you want it quick.
That’s where small online lenders come in. Whether you’re after funding to purchase inventory or equipment, manage working capital or pay for a new marketing campaign, these new entrants to the business loan scene are becoming a force to be reckoned with.
So to help you decide whether borrowing from one of these challenger brands is the right way to go, we’ve collected the below need-to-know information.
Looking for your first business loan? Check our some of our top loans below.
Page last updated September 26, 2020
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Who are these new online players?
From peer-to-peer lenders to innovative fintech companies, small, online challenger brands are coming out of the woodwork to offer a genuine alternative to the big banks. Generally, they offer two main types of financing - a business loan or a line of credit.
There are a load of lenders offering both options in our business loan comparison table, but let’s take a look at some of the top ones in a little more detail:
Banjo is an online lender offering unsecured loans to small businesses in Australia since 2014. One cool thing about Banjo, is that once you’re approved you have access to an ongoing loan facility - so if you need to borrow a little extra, you won’t have to go through the application process all over again.
Moula is an Australian online lender which exclusively deals with funding small and medium businesses. Its run on a platform that analyses your business data to decide what loan amount and interest rate you’ll qualify for. And if you like your business loan with a little corporate responsibility on the side, you’ll be glad to know Moula sponsors Thankyou - an organisation aimed at ending poverty.
Founded in 2014, Zip Business (formerly Spotcap) is an international company, based in Germany with offices in Sydney, giving Aussie businesses access to a line of credit facility worth up to 2 months of your business revenue. Similar to Moula, SpotCap uses a credit algorithm to look at your real-time business and cash-flow data when you apply.
GetCapital is Australia based, offering loans and line of credit facilities to small and medium businesses across the country. GetCapital also offers the Acquire rewards program - which will allow you to earn 1 rewards point per $1 drawn down on your loan or line of credit, up to 30,000 points per loan, which can be redeemed through the Qantas Frequent Flyer scheme.
Bigstone is an online small business lending marketplace. Bit of a mouthful, huh? What that means, is that Bigstone is a peer-to-peer lender - a service that connects you as a borrower to individual investors that meet your lending needs. Once approved by the team at Bigstone, your loan request will be listed on the marketplace for investors to view and fund. Easy!
Plenti, formerly Ratesetter, is a pretty well-known face on the peer-to-peer lending scene as the first lender to open the door to everyday investors, and has been operating in Australia since 2014.
Prospa is an online lender aimed at helping small businesses get the funding they need, when they need it. It uses a smart proprietary technology platform to allow borrowers to quickly and easily apply for loans up to $250k. At Prospa, creditworthiness is based on the health of your business - not your personal credit score.
Founded in the US in 2007, online lender OnDeck hit Australian shores in 2015 and has never looked back. Specialising in offers for small businesses, OnDeck provides flexible borrowing terms and super quick applications on its unsecured business loans which can be used to meet a whole range of business needs.
What are the benefits of borrowing from an online only business lender?
When you’re looking for a business loan, you want things to be as quick and easy as possible, so you can get on with work. There are a bunch of good reasons to go with a small online challenger, including:
- Low interest rates - interest rates from the big banks can get pretty steep, but online lenders can afford to keep rates low, because they have low or no overhead costs from not running a physical branch.
- Low fees - generally speaking, you’ll pay lower fees if you borrow from a smaller business lender. And there are often no early repayment fees on these loans - which means you can pay off your loan as quick as possible and save on interest.
- Quick approval - if you’re applying for a business loan, you don’t want to be waiting around for weeks, or even months to have the funding approved, after all, you’ve got a business to run. A number of the small lenders in Mozo’s comparison tables offer approval and funds in a matter of days - some in as little as 24 hours.
- Flexible approval process - Got a bad credit score? Many of these small online lenders don’t just look at your credit score and assets, the way a big bank might when you apply for a loan. They also consider current business data and potential for growth - which means you’ll be more likely to secure the funds you need.
- Unsecured loan options - if you borrow from one of the big banks, chances are you’ll have to put up an asset as security against the loan. If you’re not comfortable or can’t do this, then a small lender may be a good option, as many offer unsecured loan options.
What are the downsides?
Of course, nothing’s perfect. There are disadvantages to taking out a loan with an online lender, including:
- No face-to-face service - if you’d rather have the option of walking into a branch and talking to a person, you’re out of luck with a lot of these challenger brands. Very few have physical branches, and while some can be contacted over the phone, quite a few are online only. So you’ll have to be confident managing your loan online - and remember that this not only means making repayments and sorting out any potential problems, but also filling out the initial application.
- High rates for bad credit - just because you can be approved for a loan despite your bad credit score, doesn’t mean it will be a good deal. If you’re in this position, be careful of offers with tier based interest rates, or of borrowing more than you can realistically pay back.
- Not for new businesses - if you’re just starting out, you may not be able to finance your business with an online loan, because many lenders require you to have been in business for a minimum time period - usually around a year.
Business loans compared to credit cards
If you’re a small business owner in need of a little extra padding in your budget, it might be tempting to whip out your credit card. But this isn’t really a good budgeting strategy - credit card interest rates are often sky high, and it’s easy to slide into debt, especially when you start dealing with thousands of dollars at a time, which you often are in business.
In this case, a small business loan can be a much better choice - it’s a structured loan, and you’ll only be able to borrow to a preapproved limit, plus, you can usually snag a much better interest rate than you would on a credit card.
So put the plastic away, and find a business loan to suit your needs.
How will my rate be calculated?
Banks generally offer a set interest rate on each of their loan products, so you know what you’ll be getting. But with small online lenders, it can be a little more complicated, because many will offer you a loan rate tailored to your borrowing power and business.
What interest rate you receive will depend on factors like your credit score, how your business is doing and how much you want to borrow. And keep in mind, generally speaking, the more detailed business data you can provide a lender, the better your loan offer will be.
Do I qualify?
So how do you know if you’ll qualify for a small business loan? Although eligibility will be a little different for each lender, there are a few things that are common to most, that you can check off your list before you go ahead and apply.
- Credit history. Although it may not be the deciding factor for many small online business loan lenders, your credit history will still affect whether you qualify for a loan and also what kind of deal you’ll get.
- Minimum business time. A number of lenders will require your business to have been up and running for a certain time before they will agree to lend to you. This can range from a few months to a few years.
- Sales figures. You may also need to provide monthly sales figures to give the lender an idea of how your business is running and whether or not you’re a bankable borrower.
Are the online business lenders listed on Mozo safe?
Here at Mozo, we only compare business lenders that are regulated by ASIC, which means they must adhere to responsible lending regulations, keep your business information secure and disclose any fees and rates that will be payable by you the borrower. Of course, before signing up with a business lender it’s important to read the terms and conditions, so you’re aware of your repayment obligations, as these differ from provider to provider.
To compare all the loans listed on the Mozo website, visit our business loan section, which pulls 45 business loans into the one place for you to compare side by side. Or for a complete run-through, don't miss Mozo's ultimate how to get a business loan guide.
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