Differences in Offline vs. Online Business Loans


When running a business, it is not uncommon to need additional funds to stay afloat. When cash flow is tied up or capital is non-existent, borrowing funds from online lenders and banking institutions is a natural next step.

When applying for a loan, naturally you want to opt for a solution that will have the highest chances of approval with the lowest rates. With offline and online lending options available, knowing which is best for you may be confusing.

Reviewing the differences in each can help you to quickly draw a conclusion as to which lending product you’ll apply for.


Funding Source

One of the first ways that loans from a traditional bank like Wells Fargo would differ from business loans offered by an online lender like Lending Club is the funding source.

Online lenders do not receive their funding from credit or deposit accounts. The funds either come from the company itself, from investors, or from other financial sources. As such, online lenders can be more lenient in who they approve for loans and how much they loan.

When you apply for a loan with a bank, the funds you receive are not technically funded that the bank has in an account. Banks create credit or money for every new loan they approve.

This means that when approved for a loan, an account or credit is created for the loan which is an asset for the bank (unless you don’t pay).

Since banking accounts are insured by the federal reserve, if you don’t repay, the debt is covered by them. For this reason, the bank is often very strict with eligibility and approvals.


Interest Rates

Interest rates can make a big difference in a loan and whether or not a business can afford one. There are significant differences in interest rates for online lenders versus banks.

Although online lenders are known for charging higher interest rates, this is typically because they have fewer eligibility requirements and are taking a higher risk.

Online lenders are often willing to loan funds to a startup or established business with less than perfect credit and no collateral. As such, they’re taking a bigger risk and charge higher interest rates as a way to recoup what could be a loss.

Banks have lower interest rates; however, they also have stricter eligibility requirements.

Applicants are often required to have high business and personal credit scores, earn several thousands of dollars per year, and have some form of collateral like real estate, accounts receivable, or investments.

Since banks make it harder to be approved, require collateral, and have accounts that are covered by the federal reserve, they are taking less of a risk and can offer lower interest rates.



Time is something no one can afford to give up too much and applying for a business loan through a bank takes a lot of time.

It requires you to pay a visit to the bank, fill out a bunch of forms, gather all of your financial documents, and sit with a bank or loan manager to go over the process. Depending on which bank you choose to apply with, the entire process from start to finish could take weeks.

Online loans, on the other hand, are quick and easy. You can apply for them 24/7 and the initial application is generally only a few minutes long.

With modern technologies gathering financial documentation and emailing or faxing it over is synch. The process, depending on the lender you’ve chosen can be completed within a few days.


Eligibility/Chance of Approval

Last, but certainly not least are the eligibility requirements and chances of approval. Banks tend to work with established businesses that are bringing in tons of money every year.

They require a credit score of 700 to 800 and also require that you have collateral. If you’re a business just starting out, or who have had some financial trouble in the past, the chances of getting approved are slim.

Online loans, however, have improved over the past few years and have easier eligibility requirements. With most lenders lending to startups and new businesses who have no or bad credit, getting approved is a lot easier. Although financial documents may be required, they are generally not as extensive.

When trying to decide whether you should apply for a business loan at a bank or online remember to weigh the pros and cons as they pertain to your business.

If you’re new to the business, don’t have collateral, or are struggling with credit issues, an online lender could be the better approach.

However, if you’re established, have an extensive history, collateral, and good credit, going for a bank loan may be the best option.

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