The landscape for business lending has changed dramatically in the last decade, with new entrants to the market dedicated to proving affordable, simple financing meant to meet the unique needs of small businesses in wide variety of industries. The marriage between technology-based platforms and access to a diverse crowd of investors has led the charge in business lending, and small businesses are no longer stalled or rejected by the oftentimes stodgy hand of big banks.
Instead of utilizing only conventional financial analysis to determine the credit worthiness of your business, online lenders work from proprietary algorithms that assess non-traditional factors as well, such as past payments to vendors, accounting data, business purpose and social media reach. Additionally, online lenders receive funding from a variety of sources, including large institutional investors and smaller peer-to-peer individual investors. These aspects of online lending create a more transparent financing relationship for small businesses and present a viable solution for funding.
Whether your small business is in need of funding for working capital, new equipment or an infusion to the marketing budget, it is highly probable that an online business lender has something attractive to offer. Here are the best online business loans for small businesses to date.
As a leader in the peer-to-peer lending space, Prosper is a sound solution for small businesses looking for financing from $2,000 up to $35,000. The online lending platform allows individual borrowers to apply for a personal loan based on their individual credit score and past payment history for the purpose of covering business expenses. Once an application is submitted, Prosper assigns a rating to the loan, from AA as the best to HR as the riskiest, and lists the loan to all available investors on the platform. Investors then fund small portions of the loan until the requested amount is fulfilled.
Borrowers utilizing Prosper have the ability to select a three or five year loan repayment term once the funding requirement is met by investors, and APRs range from 5.99% to 36.00%. The higher the loan rating from Prosper, the lower the APR will be for the borrower. No prepayment penalties apply, but an origination fee ranging from 1% to 5% is assessed once the loan is funded. For small business owners who are willing to use their personal credit history to apply for a loan, those with a short business history or those in need of smaller amounts of financing, Prosper is a smart online lending choice.
Currently the largest peer-to-peer lender available online, Lending Club has offered business-focused loans since the beginning of 2014. Different from the company’s personal loan platform, Lending Club’s small business loans are available starting at $15,000 up to $300,000. Small business borrowers follow a similar application process as they would on other marketplace lender sites, including selecting loan amount and terms, entering business financial data, and listing the loan for investors to fund. Small business loans on Lending Club are rated based on annual revenue which cannot be lower than $75,000, as well as time in operation, which cannot be less than two full years.
Lending Club loans offer more flexible repayment terms for borrowers, from one year up to five years, and interest rates range from 5.90% to 29.90%. Borrowers with the strongest financial history and business success rate receive the highest rating and therefore the lowest interest rates. There are no prepayment penalties, but borrowers are assessed an origination fee of 1% to 6% depending on loan amount, rating and repayment term. Small business loans through Lending Club are most appropriate for established businesses that desire flexible repayment options and higher funding amounts. For start-up companies or those in need of fast cash, borrowers may want to research other online lending options.
One of the most unique players in the marketplace lending space is Kabbage, an online lender with a dedicated focus on providing financing options to online merchants. Instead of reviewing personal or business credit quality and repayment history, Kabbage allows borrowers to link their business’s online services to qualify for a line of credit from $2,000 up to $100,000. Credit lines are approved based on the variety of real-time business data received from e-commerce services, including Etsy, Amazon, PayPal, Stripe, Xero and eBay.
Online merchants have access to a Kabbage line of credit quickly, unlike the extended funding periods for other marketplace lenders. Additionally, draws from an approved line of credit can be done as often as once per day, and business owners have the benefit of only paying for what is used. Repayment on line of credit draws can be extended for six months, and no early payment fees apply. The cost of obtaining a line of credit from Kabbage ranges from 1% up to 12% of the selected loan amount, paid for the first two months, with a 1% fee assessed the remaining four months of the repayment period. For small businesses that operate solely online, Kabbage is one of the best marketplace lenders available.
As a direct lender, OnDeck also provides options for small businesses seeking financing. Borrowers applying for an OnDeck small business loan are assessed based on the overall health of the business instead of personal credit history. Businesses must have at least one year in operation and a minimum of $100,000 in annual revenue to qualify for a new loan. OnDeck provides funding from $5,000 up to $250,000, with repayment terms available over three to 24 months.
The online lending platform touts a simple application process and fast access to financing, but borrowers will pay for that convenience. While there is no prepayment penalty, the origination fee for an OnDeck business loan is 2.50% for the first loan and 1.25% for the second; origination fees are waived for all loans thereafter. APRs for a 24 month term loan range from 19.99% up to 39.99%, with shorter repayment terms costing a fixed dollar amount for every dollar borrowed. Borrowers are also required to establish automated payments on a daily or weekly schedule, unlike other lenders who allow monthly payments. Small businesses that have been in operation for some time may find OnDeck a suitable choice for their ongoing financing needs. However, new businesses or those in need of more flexible repayment terms may want to look into other lending options.