Your business needs some extra cash, and you’ve settled on seeking a loan as the best way to acquire those funds. But once you decide to go after a small business loan, you still have another choice to make: whether to apply for a term loan or a line of credit.
Here are a few guidelines to help you understand the key differences between OnDeck’s dual loan options and determine which one may be the ideal financing solution for your business.
How Small Business Term Loans and Lines of Credit Work
A term loan distributes funding in a single lump sum, and you repay the money through regularly scheduled monthly payments. A secured term loan requires collateral, while an unsecured term loan (such as OnDeck’s) does not.
A business line of credit gives you access to a fixed amount of funding that you can draw from whenever you need it. You repay what you spend through a regular schedule of payments, while your available credit is continually replenished.
The Federal Reserve reports that more than 60% of U.S. small business loan applicants need financing for recurring operating expenses. If your business falls in this category, then a line of credit may be the ideal option. This type of loan lets you withdraw funds within your credit limit without having to reapply.
On the other hand, if you are like the 41% of applicants who need funds to expand their businesses—or you have other major expenditures in mind—a term loan may be the best fit. Term loans typically offer higher maximum loan amounts than lines of credit allow.
Whether you apply for a term loan or a business line of credit, with OnDeck you’ll get a simple online application form and fast approval decision, along with one-on-one support from a dedicated loan advisor.
$5,000 to $250,000
OnDeck Line of Credit
For Frank and Lori Cosenza, owners of C and C Automotive in Bullhead City, Arizona, paying upfront for repair parts was putting a strain on their cash flow, especially during their slow season. Near the end of one November—always a challenging month for the husband and wife business partners—they opened an OnDeck line of credit to cover that operating expense. Having the cash on hand to catch up on their parts bills was just what they needed to get their business finances back on track, the couple says.
The Consenzas chose OnDeck for their business line of credit because it provided the terms they were looking for and an advisor to guide them through the process.
“I spoke many times with my rep with concerns and questions because this was new to us,” Lori Consenza says. “It was something that we had never really done, and he was so helpful and explained everything. He would call me back immediately if I called him.”
With an OnDeck Line of Credit, you get:
- A revolving credit line you can draw from at any time
- Credit limits from $6,000 to $100,000
- Flexible repayment terms of 12, 18 or 24 months
- Interest charged only on what you borrow
OnDeck Term Loan
Ghassan Bilaih, who operates Gyro Oasis Deli & Grill in Irving, Texas, turned to OnDeck when he needed financing to upgrade his restaurant equipment and implement Covid-19 safety protocols. He had considered other lenders but found their application processes extremely complicated. OnDeck not only had a much simpler application, it offered repayment terms that fit his budget and were easy to manage.
“OnDeck was easy to navigate, and the process goes on autopilot after you sign the contract,” Ghassan says. “I don’t have to call to keep track of my payments. Everyone I talked to at OnDeck is professional and friendly.”
With an OnDeck Term Loan, you get:
- A one-time lump sum of cash with an eventual option to apply for more
- Loan amounts from $5,000 to $250,000
- Repayment terms up to 24 months
- The option to apply for more after halfway paid down
Easier Qualifying and Application Processing
Survey data indicates that both the perception and the reality of stringent loan requirements keeps many small businesses from obtaining the funding they need. In the Federal Reserve’s 2022 Small Business Credit Survey, 66% of respondents said they had not applied for any funding in the previous 12 months. More than half of that group indicated they needed funding but chose not to apply, with nearly 90% citing either weak business financials or strict lender requirements as the reason. Of the 34% that did apply for financing, only 16% received all or most of the funds they sought.
Alternative lenders like OnDeck can often provide funding to small businesses that would not otherwise qualify for loans. In fact, this type of lender has the U.S. financing industry’s highest loan approval rates.
OnDeck’s simple, straightforward eligibility requirements have helped many customers overcome obstacles that can keep conventional business loans out of reach.
OnDeck’s minimum requirements and qualifications**
- 1 year in business
- 625 personal FICO score
- $100,000 annual business revenue
- Business checking account
OnDeck’s loan application process
In contrast to the mountain of documentation and lengthy review that many conventional lenders require, OnDeck’s streamlined application process boils down to three simple elements:
- Step 1: Complete the application. You don’t need to submit a pile of documents, just some basic information about your business (like your business Employer Identification Number, your Social Security number, an estimate of your annual gross revenue and your average business bank account balance) plus your bank statements from the three previous months.
- Step 2: Get a decision.Your dedicated loan advisor will review your options to help you select the best type of loan for your business. Once your application is submitted, OnDeck’s innovative method of using data analytics and digital technology to assess your creditworthiness lets you receive a quick approval decision.
- Step 3: Receive your funds. Once you complete the online checkout, you can receive your funds as soon as the same day.‡
$5,000 to $250,000
Which Loan Option is Right for Your Business?
Your OnDeck loan advisor will help you decide whether a term loan or a line of credit is the best solution for your funding needs. But you can begin preparing for that consultation ahead of time by considering the following questions:
How much cash do you need?
A business term loan typically offers a higher borrowing limit than a line of credit. An OnDeck term loan can go up to $250,000, while an OnDeck line of credit maxes out at $100,000.
How will you use the money?
If you’re planning a major, one-time purchase like a new office building, a fleet of trucks or an expensive piece of equipment, then a term loan that provides a lump sum of cash is probably the better option. If you want continuous access to cash for paying ongoing bills, a line of credit might work better for you.
How do the interest rates compare?
In weighing the cost of each type of loan, it’s important to note that a line of credit typically charges higher interest rates than a term loan. OnDeck’s transparent pricing lets you make an informed decision.#
Do you prefer predictability or flexibility?
With a term loan, you have a fixed monthly payment and interest rate, making it easy to incorporate the loan cost into your budget. But if having the ability to adjust your repayment terms is more important to you, a line of credit may be the better solution.
Why Choose OnDeck as Your Business Lender
When your small business needs financing, choosing the right lender can be just as important as deciding what type of loan to get. Here’s a recap of the top advantages that an OnDeck business loan provides:
- Easy application and quick response
- Flexible repayment terms
- Transparency for informed customer decisions
- Personalized customer service from a dedicated loan advisor
Plus, you get the quality assurance of OnDeck’s A+ rating with the Better Business Bureau and the digital security assurance of the company’s full dedication to protecting your privacy and data.
Whether a term loan or a line of credit is the best fit for your business financing goals, OnDeck can put you on a quick path to reaching them.
** There are some industries OnDeck cannot service (see list of restricted industries). In addition, OnDeck does not lend to businesses in North Dakota. Other underwriting requirements may apply.
‡ Same-Day Funding is only in certain states, for term loans up to $100,000. Eligibility window is Monday to Friday before 10:30 a.m. ET. If checkout is done before 10:30 a.m. ET funds will be available by 5 p.m. local time the same day. If checkout is done after 10:30 a.m. ET, or on a weekend or bank holiday, it will not qualify for Same-Day Funding and funds will be deposited within two to three business days.
# In states with specific commercial financing disclosure laws, OnDeck will use the state-required disclosure rather than the SMART Box®.