Small business owners are progressively embracing online lenders to fill their credit requirements. 1 in 5 credit-seeking small businesses interviewed in 2013 applied to an online lender, a survey performed by Federal Reserve Bank of New York discloses. And former SBA chief Karen Mills reports that online lending is the fastest-growing part of the small business lending market.

The outburst in online lending to businesses has numerous financiers, government bodies and policymakers wondering: Why almost every small business owner embracing this financing source?

Small business owners aren’t embracing online lenders to save cash. Business loans from online credit sources are usually more expensive than credit from banking institutions along with other traditional brick-and-mortar lenders. The charges of the normal loan from online source are nearer to the price of the median credit card loan than cost of the term loan or credit line from the banking institution. A study by economists in the FRB Governors calculated the average rate of interest billed with an online loan is roughly two times that on the traditional loan.

Individuals running their very own businesses aren’t relocating to online lenders as their likelihood of getting funding is more effective as compared to banks. While online lenders’ criteria incorporate wider information than most traditional small business creditors, permitting these to give loan to debtors with lesser credit ratings, online lenders are really less likely than banks to authorize the loan application submitted for them. A survey conducted in 2014 of small business owners carried out through the Federal Reserve Bank of New York found that online lenders had approval rates of 39%, for small regional banks and community banks 59%, and 45% for big regional banks.

Small business owners are embracing online lenders since the new creditors offer loan items that better fit their financing needs. Nowadays, many small business owners don’t need term loans to create major purchases, but rather require relatively small amount of cash to handle short-term cash flow problems.

Online lenders are able to fulfill this demand. Their loans are usually more compact in size and shorter in duration than traditional bank loans, a study by a consultancy Oliver Wyman and Company found. Many online lenders offer cash advances against A/R financing, a kind of financing that’s especially useful in removing out lumpy cash flow.

Small business owners are also attracted through the easy and rapid application processes at online lenders. Inside a survey of their clients, Merchant Advisors, an online lender discovered that a substantial quantity of its clients declined the concept of borrowing from traditional credit sources as obtaining a loan from all of these lenders is quite difficult and takes too much time.

Online lenders have faster and simplified the loan application, decision, and cash transferring processes. Furthermore, online lenders often accept or reject financing applications in minutes, as opposed to the days it requires at banks.

Majority of small business owners consider that their time is the most precious resource. They love to apply for those credit items that save them time, even when shiny things cost more.