Updated September 8, 2015
You might be familiar with LendingClub already, as it’s one of the leaders in the peer-to-peer lending industry. It’s well known for personal loans, but last year, it added small business loans to its product offerings.
LendingClub is also known for keeping rates down through its use of technology-based algorithms when determining when to lend. Human underwriters are barely touching the loans. As a result, savings in the form of lower rates are passed down to consumers and small business owners.
Let’s take a look.
LendingClub Small Business Loan Details
LendingClub allows you to borrow up to $300,000 with APRs ranging from 5.90% to 29.90% on terms of 1 to 5 years.
Fixed monthly payments are offered to help you manage your cash flow better.
Here’s a payment example from its website: if you borrow $50,000 on a 3 year term at 7.90% interest, and you have a 1.99% origination fee (totaling $995.00), you’ll actually receive $49,005.00 in your bank account and your monthly payment will be $1,564.51.
The Pros and Cons of a LendingClub Small Business Loan
Pro: LendingClub offers a great range of repayment terms – most small business loans offer 1 or 2 year repayment terms. This gives you a little more breathing room and might allow for lower monthly payments. LendingClub also presents its APRs as actual interest rates, rather than factor rates, which makes understanding your loan easier.
Con: LendingClub’s origination fee is on the higher side, depending on where you fall within the range. Many lenders have origination fees of around 3%. You’ll need to do the math to make sure that the loan is worth it if you have a 5.99% origination fee.
Pro: Unlike traditional loans with banks, LendingClub has a simple process. For example, it doesn’t require collateral for loans under $100,000, there are no appraisals done on the business, and visits to your business aren’t necessary.
Con: Only monthly payments are offered. While LendingClub says this helps businesses manage cash flow better, you need to analyze whether or not your business can handle such a big hit once a month. Sometimes, daily payments are less disruptive to cash flow as smaller payments are easier to handle.
Pro: LendingClub takes a more personal approach than other lenders, possibly because of its background in personal loans. If your business is experiencing a down period and you can’t afford to pay, it encourages borrowers to reach out to Client Advisors to work on alternative solutions.
What Businesses Are Eligible For a LendingClub Loan?
Your business must have two years in operating history, at least $75,000 in annual sales, and have no bankruptcies or tax liens within recent years. You must own 20% of the business and have fair or better personal credit to guarantee the loan.
LendingClub can’t loan to businesses in Iowa and Idaho.
There are no specific industries excluded on its website, but the ones it works with the most are: professional and personal services, retailers, restaurants, manufactures, automotive, health and wellness providers, wholesalers, and contractors.
Application Process and Documents Needed
When you apply for a small business loan with LendingClub, you’re getting a prequalification first. The application takes minutes to fill out, and you’ll receive multiple quotes upon completion.
The good thing about LendingClub is that it uses a soft credit pull at first to see if you’re eligible for a loan. That means your credit won’t be impacted. Only if you choose to move forward with an offer will a hard pull be used.
LendingClub states that once you’ve accepted a loan, you’ll be provided with a list of documents needed, and you can be funded in as little as 5 days total.
Only one guarantor can be on the loan, so if you own the business with someone else, decide who’s going to apply. Typically, it can help for the owner with better credit to apply.
You should have the following documents ready during the application process:
- Bank statements from the last 3 months (include all business bank accounts used regularly)
- Most recent business tax returns
- IRS form 4506t (to verify you filed taxes)
- Driver’s license/Photo ID
- Business tax ID
LendingClub doesn’t specifically say what documents it might ask you for, but it pays to be prepared. The sooner you submit documentation, the sooner you’ll get funded. Documentation is usually what slows the process down.
The Fine Print
There are no prepayment penalties or hidden fees with LendingClub. There is a one-time origination fee of 1.00% to 6.00% to be aware of, though. You can see how origination fees correlate with interest rates on this page of its website.
If you’re late making a payment, a late fee of $15 or 5% of the unpaid amount (whichever is greater) will be charged to your account.
If a payment is unsuccessful, you’ll be charged a $15 fee for each failed attempt to get the payment.
If your loan is under $100,000, LendingClub doesn’t require any collateral. Loans over $100,000 require a UCC lien on the business’ liquid assets.
Also, keep in mind that you can’t withdraw your request for a loan once it has been issued.
Which Businesses Benefit the Most from a Loan With LendingClub?
Businesses that meet the minimum requirements – 2 years in business and $75,000+ in annual revenue – will benefit the most from applying with LendingClub.
Businesses that can handle one large payment per month might also benefit more, due to LendingClub’s monthly payment structure. If your business has been having a rough time, or is in a slow season, evaluate whether or not you can handle the payments.
It’s also worth analyzing the return you want to get with this loan. What are you planning on using it for? Are you expanding? Hiring new employees? Purchasing inventory or equipment? You want to make sure the rates and terms offered to you make sense depending on what the purpose of the loan is.
Other Alternative Small Business Lenders
LendingClub is a bit unusual considering it’s a peer-to-peer lender. Institutional investors are responsible for funding these small business loans, not actual banks.
If you’d like to take a look at other peer-to-peer lenders, you can check out Dealstruck and Funding Circle.
Funding Circle is LendingClub’s closest competitor, offering loans from $25,000 to $500,000 on 1 to 5 year repayment terms. Its origination fees range from 0.99% – 6.99%, and APRs range from 5.49% to 27.79%.
Dealstruck is offering loans from $50,000 to $250,000 on terms of up to 3 years.
Would you rather be funded by a single institution? OnDeck and Fundation are two other alternatives worth checking out.
OnDeck offers loans between $5,000 and $250,000 on terms of 3 to 24 months. Its origination fee is 2.5%, and you only need one year in business and $100,000 annual revenue to qualify. OnDeck loans come with fixed daily payments.
Fundation offers loans up to $150,000 for working capital, and up to $500,000 for business expansion. One and two year terms are available for its working capital loan, while 2, 3, and 4-year terms are available for its business expansion loan. APRs range from 7.99% to 25%. Fundation allows for twice a month payments.
Shopping Around Can Be Worth the Trouble
As a small business owner, you’re probably low on time as it is. The thought of applying with a bunch of different lenders to chase down the best rates and terms might not seem appealing. However, if you really need the money and are low on reserves, then you should be thinking about the financial health of your business.
Lower interest rates have the potential to save you thousands. It’s worth shopping around to find the best deal for you and your business, and if you do so within 30 days, your credit score is minimally affected. Applying with lenders like LendingClub is even better because you can receive quotes without having your credit impacted.