The Fintech explosion is already good news for small and young businesses. But with so many online business loan companies out there, it can be confusing to know where to start.
Our suggestion: first, understand your use of proceeds so you have a good idea of what type of debt financing “product” you are shopping for. Second, understand Fintech ethics issues. Then you’ll be ready to start shopping.
We’ve organized the following list of companies that offer online business debt by the types of financing they offer. We think this will help you to rapidly sort through which companies to approach now. The list of 25 companies breaks down as follows:
- 8 Online Business Loan Marketplaces that connect businesses with many different debt providers
- 7 Term Loan specialists, who often also offer Lines of Credit
- 5 Line of Credit specialists, who sometimes offer other typically high cost offerings such as factoring or merchant cash advances
- 3 Customer Financing specialists, who help companies provide their customers with financing terms
- 2 Companies in Other Online Business Loan niches.
If the profiled company has signed on to the Small Business Borrowers’ Bill of Rights, you’ll see this logo in their profile. While this is not a guarantee of ethical behavior, it’s the best indicator we can find that the firm is much less likely to act like an online loan shark.
8 Online Business Loan Marketplaces
Don’t know exactly what you’re looking for? No problem. In the US there are eight prominent Fintech Marketplace companies serving online business loan needs. These companies say they help you find the “perfect match” for your particular debt requirements. In some cases they have sophisticated software that evaluates your financials.
Biz2Credit has been operating a loan marketplace the longest, since it was founded in 2007. It is mostly in New York, partly in India. Its venture capital backers Nexus Venture Partners specialize in companies with an India connection. LinkedIn currently says 139 employees are based in New York, and 40 are in India where they appear to be focused on offering similar types of services to Indian small and medium size businesses (SMEs). It’s not clear how much venture capital equity they have raised, but they closed on $250 million of debt to lend at the end of 2014. And they say on their web site they have arranged more than $1.6 billion in lending for more than 100,000 companies.
Fundera was founded in 2013, and is also headquartered in New York. They have raised about $19 million in equity including Khosla Ventures. Their web site claims $350 million has been lent to small businesses through their competitive marketplace. They’ve posted this blog about their “why” – they have a small business background. Fundera has been a vocal advocate for the Small Business Borrowers’ Bill of Rights and has written about the ethical challenges of commercial loan brokers.
Lendio is based in Utah and has raised just over $50 million in equity. Their web site includes some helpful loan calculators for different types of loans. Most of the calculators are pretty similar but the text that follows will help you understand what to expect for key terms of the loans.
Nav is first and foremost focused on credit reports. Specifically they provide both personal and business credit reports, as many young companies need to rely on their personal credit score for at least some types of loans. Based in Silicon Valley in California, the firm has raised more than $35 million in equity. As of this writing their business loan “marketplace” features 44 offers from 29 different alternative finance companies, some of whom are listed elsewhere in this blog.
Quickbooks Financing is one of the services provided by the current leader in small business accounting systems. The company has been around since 1983 although this service is relatively new (2014). Its web site currently claims more than $700 million in loans provided to Quickbooks users. The three “vetted partners” featured at the moment are Lending Club, OnDeck and Funding Circle.
Smartbiz is a focused marketplace for SBA loans. They have become the #1 originator of small SBA loans, as we wrote about here. They’ve raised $37 million in venture capital after incubating at Paypal in Silicon Valley, and today they’re based in San Francisco.
The SBA Lender Match isn’t a Fintech marketplace, but it’s a few steps in the right direction for young companies looking for an SBA loan. Like other marketplaces listed here, this site connects companies with potential lenders.
Street Shares emphasizes its community of veterans, both as funders and as business owners. It offers term loans up to 3 years, as well as lines of credit. Accredited investors can invest directly in loans through an auction process, or non-accredited investors can invest in 5% interest “Veteran Business Bonds.” The company has raised about $9 million in venture capital and $200 million in debt financing.
Venturize is the Fintech portal to reach CDFIs that serve small businesses. It’s operated by the Opportunity Finance Network, which connects 240 mission driven lenders. Unlike pretty much all other Fintech companies, the funders here are mostly non-profits with a mission to support community development, and to finance underserved populations without outrageously pricey financing terms. The likely tradeoff is that the connections you make here will take a bit longer to turn into cash in the bank than the typical Fintech offering. Time is money – if you’ve got the time, maybe you can save money.
7 Term Online Business Loan specialists
Many online business loan providers listed on this post offer a variety of debt products, but not that many include “longer term” loans that are one year or longer in duration. Those tend to have higher risk because they are longer, and therefore are not available to the highest risk companies. So if you are looking for a longer term loan focus on these companies.
Able Lending uses a twist on “friends and family” loans to make business term loans far more affordable. Their core insight: if a company can convince friends and family to lend a portion of a larger loan, the business is far more likely to repay the loan. Further, Able Lending reduces the repayment risk for its lending investors who aren’t “friends and family” by structuring repayments so that those investors get repaid ahead of the friends and family lenders. Hear more about this on a Lend Academy podcast interview. Bottom line: if you can get some of the loan but not all, Able Lending can turbocharge your friends and family debt financing.
Bond Street is a New York based company founded in 2013 that has an affiliation with investment bank Jeffries. The company’s web site touts small business loans up to $1 million with rates “starting at” 6% and “as long as” 1-3 years. Jeffries has so far raised $400 million in debt that Bond Street will turn into small business loans. Jeffries is also an equity investor, among those who have put $11.5 million into the company.
Credibility Capital focuses on somewhat lower risk businesses (FICO 650+, 18+ months in business, $150K+ annual revenue), and sources its customers through Dun and Bradstreet. Its term loans go up to 3 years, and it claims a very competitive APR versus other Fintech companies that lend to higher risk companies. The New York City based company incubated with IA Capital, a Fintech focused VC firm, and is run by an IA Capital partner.
The Credit Junction is very specific in its focus for term loans. Its web site says revenue must range between $5 million and $25 million annually and the businesses must be asset based: manufacturers, suppliers and distributors. The Washington DC based firm has raised $2 million in seed equity.
Funding Circle is a Fintech veteran based out of London but doing business in the US as well. Founded in 2010, the company was originally a “peer to peer lending” firm but now also funds the loans it provides to small businesses with institutional money. As it states to potential investors on its web site, “The loans range from $25K to $500K, have 6-month to 5 year terms, and feature coupon rates from 4.99% to 28.79%.” The company has raised more than $370 million in equity including a $100 million investment from my old firm Accel Partners in January 2017.
Lending Club is a publicly traded Fintech pioneer. Founded in 2007, it received significant equity from venerable venture capital firms including Norwest, Morgenthaler, Union Square and Kleiner Perkins, and went public in 2014.The company offers personal, business and auto loans through marketplace lending. Since its start Lending Club has generated about $25 billion in loans, and $8.7 billion in 2016 alone. But most of its loans are to individuals. Small business loans started in March 2014, and lines of credit in October 2015. Lending Club had a major scandal in 2016 that led to its CEO resigning, and has suffered since then.
OnDeck is also a Fintech pioneer that was founded in 2006 in New York and launched in 2007 with a focus on small business lending. After significant venture capital investment from well known firms, like Lending Club the firm went public in 2014. The company operates in the US, Canada and Australia offering term loans and lines of credit for small businesses. Like many Fintech companies its loans are not cheap. As a public company it disclosed a weighted average APR of 44.9% for term loans originated in Q2 2017, and 32.1% for its lines of credit. Their technology platform is used by banking giant Chase for Chase Business Quick Capital(sm). And they use partners or advisors to generate 40% of their loans, including Intuit (QuickBooks Financing listed above), Credit Karma, Angie’s List and Prosper along with loan brokers and equipment leasing advisors.
5 Line of Credit specialists
If you are seeking a line of credit or similar short-term financing, and especially if your business credit rating is less than stellar, a number of specialized Fintech companies want your business. They offer expensive capital to those who otherwise can’t access what they need.
BlueVine Capital is a Silicon Valley firm that has raised significant amounts of capital: $113 million in equity and $205 million in debt as of this writing. They offer both lines of credit (up to $150,000, repayments over 6 or 12 months) and invoice factoring (up to $2.5 million). The company touts the absence of three fees as distinctive versus the competition: no unused credit fees, no maintenance fees, and no prepayment penalties.
Fundbox is a San Francisco tech-intensive firm that integrates its software with accounting packages including QuickBooks, Xero and Freshbooks. Rapid analysis of invoices input into the software can lead to rapid increases in the line of credit available, so their offering is kind of a hybrid of invoice financing or factoring and a line of credit. Their pricing is simpler to understand than factoring: it’s a weekly fee for either 12 or 24 week payback periods. There are no prepayment penalties, although the weekly fees remain the same as long as any balance remains. And unlike some factoring companies, Fundbox does not insist on customer repayments going to them, which is an uncomfortable part of factoring. The company has raised $108 million from top VCs.
Kabbage is a line of credit leader with its almost $500 million in venture capital and almost $1 billion in debt financing. We’ve written elsewhere about the company and its line of credit innovation, but suffice it to say they are a prominent option if you are looking for a line of credit but are challenged because of a not so stellar business credit rating. Since we wrote that earlier profile, the Fintech ethics battle has become more clear (for us at least) and Kabbage’s prominent role in an “alternative association” makes us think businesses should be cautious in exploring their offering.
P2BInvestor has a unique focus: mission-driven companies who have made progress but aren’t quite yet bankable and don’t want to pursue equity. Its line of credit has a few unique features including credit terms that improve over time for companies that pay on time. To qualify companies must have accounts receivable or inventory as security, two years of operations and annual revenue over $500,000, and previous growth with the desire for more. The Denver-based company has raised almost $10 million in equity and $5 million in debt, in addition to a recently announced partnership with mission-focused New Resource Bank.
Rapid Advance was an early merchant cash advance company (founded in 2005) that now offers term loans and lines of credit as well. The company was acquired in 2014 by a private equity firm run by the founder of what is now Quicken Loans. Over the company’s history it has provided over $1 billion in debt to small businesses in all 50 states. The company uses an extensive network of marketing partners such as factors, credit card processors and commercial loan brokers to reach its small business customers.
3 Customer Financing specialists
Accounts receivable can be financed several ways. A new online business loan option is providing your customers with specialized financing for just your products, an option which used to be available just to large companies. This puts the burden of collections on a third party, and often helps customers make the buy decision more often.
Behalf says its instant point of sale customer financing product increases sales by 10% to 20% on average. Their software integrates with e-commerce systems to offer payment term options, which not only increases sales but decreases accounts receivables management versus taking on that function in-house. The maximum it offers per customer is $50,000, and its minimum purchase size for financing is $300. With $156 million in venture capital behind it, this New York City based Fintech company is now partnering with Utah-based FinWise Bank to provide the debt capital for its current and future offerings.
FinanceIt touts the “free to merchants” feature as a reason to consider its customer financing options. Applications can be web, mobile or “direct to customer” (i.e., a loan application emailed to the customer). Based in Toronto, Canada, the company focuses on merchant customers there in home improvement, retail and vehicles. Since its founding in 2007 the company has raised $38 million in venture capital.
Greensky offers customer financing in four targeted industries: home improvement, specialty retail, healthcare, and e-commerce (initially with Shopify integration). It touts a customer credit limit of $55,000, a mobile app option, and the availability of up to 20% of receivables up front as distinctive advantages versus the competition. Founded in 2006, the Atlanta based company took in a $300 million private equity financing in 2014, followed by $50 million in additional equity from Fifth Third Bancorp. (#15 US bank by assets) in 2016.
Other Online Business Loan Niches
Applepie Capital focuses on financing for franchise operators. First it vets franchises and builds relationships with them. Then it lends to franchisees who want to start, grow or acquire those particular franchises. The company gets its capital from marketplace lending, aka debt crowdfunding. The company competes with SBA loans, conventional loans and equipment financing by offering faster funding, no personal collateral, and financing for the first unit a franchisee purchase.
Paypal is a well established payments company that has been offering its own form of merchant cash advances to businesses with at least 3 months of operating a Paypal account and annual Paypal revenue between $20,000 and $20 million. If approved you can get up to 30% of your annual Paypal sales as a loan, with a maximum of $97,000 on the first advance and $125,000 for subsequent advances. Customers can choose what percentage of Paypal revenue is repaid per day, but slower (lower) repayment results in higher fees. Here is a screen shot from their fee calculator with one example, with annual interest equivalents of the fees ranging from 14.8% for a 30% repayment rate to 23.2% for a 20% repayment rate: