Peer-to-peer lenders directly connect borrowers with individual investors. Several investors typically fund small chunks of each loan, and lending criteria is usually less stringent than it is at traditional brick-and-mortar banks. However, interest rates are usually higher.
Lending Club
Lending Club, the nation’s largest peer-to-peer lender, began making small business loans — a separate program from their main product, unsecured personal loans — in March 2014.
You must have owned the business for at least two years and have at least $75,000 in annual revenue. Borrowers can request $15,000 to $300,000 and pay back the loans under flexible terms ranging from one to five years. The interest rates, ranging from 5.9% to 29.9%, are clearly disclosed and among the most competitive I saw.
There are a range of fees to know about: Lending Club charges an origination fee of roughly 1% to 6%, and there are $15 fees for unsuccessful payments and payments by check. Late payments will cost you $15 or 5% of your outstanding balance, whichever is greater.
Who it’s good for: Any relatively established small business that wants flexible repayment terms (options range from one to five years) from one of the nation’s largest, most established peer-to-peer lenders.
Who should pass: Very new or small businesses probably won’t qualify with Lending Club. Residents of Idaho, Iowa, Maine, Nebraska, and North Dakota aren’t eligible to borrow. And if you need cash fast, note that it can take up to two weeks for your loan to be funded.
Now available in 48 states (all besides Idaho and Iowa).
Funding Circle
Funding Circle, a peer-to-peer lending behemoth from the United Kingdom, is dedicated solely to small business financing. It recently launched in the U.S. and will make loans from $25,000 up to a hefty $500,000 at rates from 5.99% to 20.99%. Terms are flexible and range from two to five years.
There are only two fees: a flat origination fee of 2.99% and a flat late payment fee, 10% of the missed payment. From their application, it appears Funding Circle requires annual revenue of more than $150,000 and at least two years in business (one must have been profitable). Both business and personal tax returns as well as business bank statements are required to apply (even more documentation is required for loans over $200,000).
Who it’s good for: A well-established business that needs to borrow a larger sum up to $500,000. Residents of all 50 states are eligible, and Funding Circle is a particularly good pick for businesses that want to keep fees minimal and easy to understand.
Who should pass: Funding Circle requires $150,000 in annual revenue, so newer businesses may have to look elsewhere. This also isn’t the best pick for businesses that need cash in a hurry: The application is fairly involved, and like Lending Club, it can take a couple of weeks for your loan to be funded. Also, note that the late payment fee (10% of your missed payment) is pretty high.
Prosper
Prosper is similar to Lending Club, but it doesn’t have separate loans for small businesses. However, you can use its unsecured personal loans for small business purposes. This can make Prosper a good choice if you need a smaller amount (you can borrow up to $35,000) and your business doesn’t have the established track record to qualify for dedicated small business loans.
APRs range from 5.99% to 32.99%. It can take up to two weeks for your loan to be funded, and you can choose only a three- or five-year term.
Who it’s good for: Prosper would work best for a newer small business that needs a smaller amount ($35,000 or less) that doesn’t have the revenue or longevity to qualify for a dedicated small business loan. As one of the nation’s biggest peer-to-peer lenders, it’s a good pick for someone who’s nervous about getting a loan online.
Who should pass: Any small-business owner who doesn’t want to put his or her personal credit on the line will want to skip Prosper. The relatively low loan limit and inflexible terms may also be too restrictive for some. The two-week wait for funds also applies.
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