Online lenders or banks: what each costs you and asks of you

On this page

• Online lenders trade cost for speed
• Compare total dollars repaid, not rates and fees
• Federal truth-in-lending rules do not require an APR on business credit
• An online lender fits a short, measurable payback
• A bank or SBA lender fits long-lived needs
• SBA Express sits between the two
• When each choice is a bad idea
• Three questions settle most choices

Online lenders trade cost for speed

Online lenders win on speed and draw more cost complaints, and the Federal Reserve's 2025 survey shows both. The survey drew 6,525 responses from a nationwide convenience sample of small employer firms. Firms that applied at online lenders chose them for speed (64%) and their chance of being funded (49%). Firms that applied at banks chose them for an existing relationship (62% at small banks, 61% at large banks).

The price of that speed shows in the results:

• Costs came in higher than expected for 60% of online-lender borrowers, against 37% at small banks and 32% at large banks.
• A high interest rate was a challenge for 61% of online-lender applicants, against 28% at large banks and 30% at small banks.
• Only 35% of online-lender customers said they were satisfied, against 65% at small banks and 64% at large banks.

Online lenders did draw fewer complaints about waiting. Only 8% of their applicants named a long wait for a decision or funding as a challenge. At large banks it was 21%, and at small banks 16%.

The survey reports what firms experienced, not what you will be quoted. It defines online lenders as nonbanks that operate online, and their products differ. Use the numbers as a prompt to check cost, not as a verdict on any one lender.

Compare total dollars repaid, not rates and fees

Convert every offer to total dollars repaid, then to an APR. Banks quote an annual rate. Many online products quote a flat fee or a factor instead.

Suppose you need $100,000 for a year. These numbers are assumptions for the arithmetic, not quotes.

• Bank term loan: a 10% APR and 12 monthly payments of about $8,792. You repay $105,499. The cost is $5,499.
• Online loan: a 12% fee repaid in 26 weekly payments of about $4,308. You repay $112,000. The cost is $12,000.

The fee looks close to the bank's rate, but you repay the money in half the time. You owe about $50,000 on average for half a year. So $12,000 divided by ($50,000 times 0.5) is 48%. The formal APR, which counts every payment, comes to about 45%.

The online loan costs $6,501 more in dollars even though it runs half as long. Per year of borrowing, its APR is more than four times the bank's.

Federal truth-in-lending rules do not require an APR on business credit

Regulation Z, the federal truth-in-lending rule, does not apply to credit extended primarily for a business purpose (12 CFR 1026.3(a)). So a business lender is not required to give you an APR under that rule.

Some states add their own rules. New York requires certain providers of commercial financing of up to $2,500,000 to give standardized cost disclosures. They include an annual percentage rate, which is an estimate for sales-based financing (23 NYCRR 600.3 and 600.7).

Ask every lender for these in writing:

• The amount you actually receive after fees.
• The total you will repay.
• The number, size and timing of the payments.
• What it costs to pay early, if you may at all.

An online lender fits a short, measurable payback

An online lender fits when the money earns more than it costs and comes back quickly. Suppose a $20,000 inventory purchase fills an order that earns $9,000 in gross profit. An 8% fee costs $1,600, so you keep $7,400. A slower decision would have saved the fee and lost the order.

It also fits in three other cases:

• You have no collateral to pledge. 38% of online-lender applicants chose that source because none was required.
• Another lender has already said no. 28% of online-lender applicants had been denied elsewhere first.
• Your operating history is shorter than a bank wants.

A bank or SBA lender fits long-lived needs

A bank or SBA lender fits when the need lasts for years. Match the repayment period to the life of what you buy. Equipment, a building or a business purchase lasts for years, and the loan should too.

SBA's maximum term for real estate is 25 years, plus any reasonable construction or renovation period. For working capitalworking capitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition it is 10 years (SOP 50 10 8.1, Appendix 17). SBA caps the variable rate a lender may charge at Prime plus 3.0 to 6.5 percentage points, depending on loan size (13 CFR § 120.214). The lender sets your actual rate at or below that cap.

The trade is paperwork and a guarantee. The lender reviews your tax returns and statements. Owners with 20% or more of the business generally must sign an unlimited personal guaranteepersonal guaranteeYour promise to repay the loan yourself if the business cannot. (13 CFR § 120.160; SOP 50 10 8.1, Sec. A, Ch. 5, Para. A). Guarantees are common beyond SBA loans. 59% of firms with debt in the survey had secured it with one.

For a side-by-side of the two, see SBA loan or bank loan.

SBA Express sits between the two

SBA Express is a third option for smaller amounts. It is an SBA loan made by a lender with SBA Express authority. The loan can reach $500,000, and the lender makes the credit decision without prior SBA review (SOP 50 10 8.1, Sec. B, Ch. 2). SBA guarantees up to 50% of it, and SBA's rate caps apply.

Be careful with timing claims. SBA publishes no turnaround time for SBA Express; the lender makes the credit decision (sba.gov/sba-lenders, read November 9, 2026). Treat any timing a lender or broker quotes as that party's estimate. Ask for it in writing.

When each choice is a bad idea

• A short online product for a long need. Six months of repayment on a ten-year asset forces a refinance and a second set of fees.
• A renewal before you finish the first advance. The new fee can apply to the balance you still owe.
• A bank loan when the opportunity will not wait. If the chance ends first, the cheaper loan costs you more.
• The first offer you receive. Get at least two, and make one of them the bank that holds your accounts.
• Any loan that costs more than the money earns. The cost is certain. The return is not.

Three questions settle most choices

1. Will the money earn more than it costs before the last payment? If it earns $9,000 and costs $12,000, do not borrow it.
2. Does the repayment period match the use? Pay for a delivery truck over the years you will drive it.
3. Do you have two offers in total dollars? For each, list the amount you receive, the amount you repay and the APR.

If an SBA loan fits the use, compare it the same way. Lenders set SBA loan pricing within SBA's limits, so offers vary by lender.