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Why Are Online Loans Sometimes More Expensive Than Bank Loans?

Are you an ambitious entrepreneur looking to get your idea on the ground running? If so, you are likely knee-deep in the process of searching for the proper funding necessary to pursue your dreams. Unfortunately, the process of applying for a small business loan can be a tedious and complicated process which may extinguish some of your excitement.

While many default to looking at bank business loans and endure the associated cumbersome application process, a growing number of small business owners are instead turning to non-traditional online business owners through independent lenders. Unfortunately, many people disregard non-traditional lending as a viable option for their business due to its traditionally higher cost. But what exactly is the difference between the two methods, and are the increased interest rates and costs justified? In most cases, absolutely.

Banks Have a Cheaper Supply of Money

One of the primary reasons why loans from online lenders cost more is due to the fact that banks often have a much better access to cheap money from multiple sources. Banks lend money to individuals and businesses using the funds that customers hold in their savings accounts, whereas loans from non-traditional lenders use money from investors such as venture capital firms, hedge funds, and others. Likewise, the Federal Reserve lends money to banks at far lower rates than independent lenders receive from credit facilities.

Independent Lenders Assume a Higher Risk

Yet another huge reason why online loans cost more is that independent lenders offer loans to business clients who banks consider to be “high risk,” such as fledgling businesses, startups, and clients with poor or no credit at all. As such, independent lenders must charge a higher interest rate to protect themselves in case of default.

Quicker Access to Funds

Likewise, the application and approval process for online loans is far quicker than the traditional process of applying for a bank loan. In many cases, online business loans can be approved in as little as 24 hours, with borrowers gaining access to funds mere days after applying. This increased speed results in higher processing costs, which are partially passed on to borrowers.

Greater Convenience

Nobody wants to stand in a long line at a bank looking for a business loan only to find out that they do not qualify. Online lenders allow prospective borrowers to apply for loans from the comfort of their home, saving them from the hassle of having to meet with a banker potentially several times before finally securing the funds they need. Many online lenders utilize automated online algorithms which streamline the approval process and allow applicants to be approved in a fraction of the time as a bank.

Need Funding? Contact Green Ocean Solutions

If you are in need of a loan for your small business in Los Angeles, get in touch with Green Ocean Solutions today. We offer quick, convenient lending without the hassle and scrutiny of going to a bank and can approve you for up to $2,000,000 in as little as 1 business day. From short-term financing and term loans to equipment financing, we have a variety of options to help your business secure the funds it needs to thrive. When banks say no, we say yes!

Call (888) 997-2179 or fill out an online application today to get the funds you need!