Small businesses often struggle to find affordable funds to keep their businesses running. Online lending solutions offer an alternative to conventional bank loans with the advantages of a much shorter approval process and criteria that are friendlier to online merchants.
Still, most lenders — online or brick and mortar — require a revenue stream before they are willing to make a loan. Following is a list of resources that can help small online merchants find a lender that meets their needs.
6 Alternative Funding Resources
Accion. What makes this non-profit organization unique is its willingness to lend to start-ups (in business for less than six months) and its localization (by state) of lending criteria. Loan amounts range from $300 to $1 million and the average is $10,000. A minimum credit score of 575 is usually required and borrowers must be up to date on all business and personal bills. The borrower should have collateral in the form of real estate, a car, or business assets. The company must have a business plan that includes a budget and cash flow projections.
Accion also targets women, minority, and veteran-owned businesses as well as persons with disabilities. The online application process usually takes about 15 minutes.
Fundation. Loans are between $20,000 and $500,000 and funds can be used for working capital, business expansion, debt refinancing, equipment purchases, inventory purchases, and capital improvements. Fundation does not require collateral. Interest rates range from 7.99 to 29.99 percent depending on how Fundation assesses the risk.
A business must be open for at least two years, have at least three employees, and revenue of at least $100,000 a year. Repayment terms are from one to four years. A preliminary decision is usually made in 10 minutes with a final decision in 48 hours after the potential borrower speaks with a loan specialist.
Kabbage. If you own an established business and need a line of credit, Kabbage can help. It is attractive to ecommerce companies because, rather than asking for financial statements and tax returns, Kabbage will link to a business checking account, QuickBooks records, PayPal, Shopify, Amazon, or several other online services. Kabbage reviews this information to determine average monthly revenue and transaction volume. Within minutes, a merchant will know if he is qualified for a loan and in most cases the funds can be transferred right after approval.
The company offers lines of credit between $2,000 and $100,000. Each draw against a line of credit is considered a separate loan but the borrower pays a fee only on what is borrowed, not the full line. Funds are deposited either into a bank or PayPal account. Each time a borrower takes a loan, he has six months or 12 months to pay it off.
A minimum loan of $5,000 is required for a 12-month payoff. Borrowers pay fees rather than interest. Fees are 1.5 to 12 percent of the loan amount. Every month, the borrower pays back one sixth of the total loan (for six-month loans) or one twelfth of the total loan (for 12-month loans) plus the monthly fee. There are no early payment penalties.
OnDeck. For those with less than stellar credit, OnDeck may be a good option. Loan recipients must have a minimum credit score of only 500, considerably lower than most lenders. OnDeck offers fixed-rate loans between $5,000 and $250,000. To qualify, a minimum of one year in business and annual revenue of at least $100,000 is necessary. The loans have lengths ranging from three to 24 months. OnDeck loans are paid back on a daily or weekly basis with a fixed amount automatically debited from a bank account. Loans can be approved in one day. The company offers both phone and live-chat support.
PayPal. Working capital loans are available to those small businesses that process payments via PayPal. A business must process payments with PayPal for at least three months and attain more than $20,000 in PayPal sales within 12 months. PayPal sales include processing on PayPal Express checkout, PayPal Payments Standard, PayPal Payments Pro, and PayPal Here.
Businesses select the daily repayment percentage, which is the portion of future sales that will go toward repaying the loan balance. The loan balance is repaid automatically as businesses make sales through PayPal. At least 10 percent of the total of the original loan amount plus a loan fee is due every 90 days, up to 540 days, or until the loan is paid in full, whichever occurs first. PayPal does not require a credit check or collateral.
Lendio. If none of the options above work for you, try Lendio, a clearinghouse for lenders. When you input a desired loan amount, your sales information, and credit score, Lendio provides a list of potential lenders and their loan rates and fees. Most importantly, only one application is required. The borrower can choose among the lenders. Lendio also provides the benefits and drawbacks of each type of loan offered.