Lending Club, launched in 2007, offers fast access to cash, flexible repayment terms, the ability to build good business credit and an annual percentage rate that, for some, is comparable to that of bank loans. But the peer-to-peer marketplace isn’t a perfect fit for every borrower. Here are the details.
Lending Club is best for businesses that …
- Are well-established
- Want to expand and need cash fast
- Have a solid business history and finances
- Have owners with good personal credit
If you’re ready to get started, apply on Lending Club’s secure site:
Lending Club business loans at a glance
| Loan types | Term loan, line of credit |
| Cost of funding | 8% to 32% APR |
| Approval time | Apply in less than five minutes, with funding as fast as two days but as long as one or two weeks depending on how quickly documents are submitted |
| Loan amounts | $5,000 - $300,000 for term loans; $5,000 - $300,000 for lines of credit |
| Loan terms | One to five years for term loans; up to 25 months for lines of credit |
Do you qualify for Lending Club?
- You need to have been in business for at least two years.
- Minimum annual revenue is $75,000.
- You must own at least 20% of the business.
- The minimum personal credit score is 600, with no recent bankruptcies or tax liens.
- Collateral is required for loans and lines of credit of more than $100,000. The company files a UCC-1 lien, a type of lien that allows Lending Club to seize your business assets (inventory, cash, and accounts receivables) if you default on the loan.
- If approved, you’ll be required to submit three months of business bank account statements, an IRS Form 4506T, and business tax returns.
- Lending Club does not provide small-business loans to borrowers in Iowa, Idaho, Maine, North Dakota, and Rhode Island.
- Although Lending Club lends to most types of businesses, the company says its loans cannot be used for financial investing, gambling or adult businesses.
Reasons to use Lending Club
Less stringent requirements than banks: Banks typically want borrowers with excellent personal credit and hard assets as collateral (real estate or equipment) to back the loan.
Lending Club is less stringent. You’ll need a minimum personal credit score of 600 and the lender only requires a UCC-1 lien on loans and lines of credit greater than $100,000. Approval is also based on your annual revenue and financial strength.
Competitive rates: The APR for Lending Club business loans and lines of credit ranges from 8% to 32%. APR represents the true annual cost of borrowing, including interest and fees. In Lending Club’s case, that includes an interest rate of 5.9% to 25.9% and a one-time origination fee of .99% to 5.99% for its term loans. For its lines of credit, the interest rates range from 6% to 21.6%, and its draw fee is 1% to 2% each time you borrow.
Lending Club’s overall cost of funding is slightly higher than that of traditional banks — which often charge 6% to 10% APR — but lower than the costs of other online lenders, which can have APRs as high as 113%.
Nerd Note: On a $50,000 loan at an APR of 20% and a repayment term of 24 months, borrowers would make 24 monthly payments of $2,422.
The APR you receive will depend on factors including the size of your loan, the length of your repayment term, your personal credit score, your business’s annual revenue, and how long you’ve been operating. If you have a strong credit profile and a healthy business, you may be able to qualify for Lending Club’s lowest rates.
Faster access to cash: Lending Club’s application and funding processes are faster and more convenient than those of banks. You can complete the application online in just five to 10 minutes to get prequalified. Once prequalified, you can get a quote for a loan or line of credit with no impact to your credit score, and you’re required to submit documents only if you’ve been approved for financing (if you don’t qualify, Lending Club will tell you why immediately, and you can apply again once you’ve met the company’s requirements).
You could be funded as fast as within two days, but it may take a week or two, depending on the size of the loan and how quickly you submit documents.
The lender’s clients are often businesses that qualify for bank loans but choose Lending Club because the application process is quicker, says Tom Green, Lending Club’s vice president of small business lending.
No prepayment penalty: You won’t be charged a prepayment penalty for paying off your Lending Club term loan early, and it will also save you on interest. This isn’t always the case with other online lenders’ term loans, which may require you to repay the full amount of fees and interest no matter when you finish payments.
Flexible borrowing: Lending Club’s business line of credit gives business owners the ability to borrow cash as needed. You’ll only pay interest on the amount that is drawn from the credit line. It’s a good option if you want access to cash but don’t need a lump sum of cash upfront.
Where Lending Club falls short
High rates for poor credit: Although APR for business loans at Lending Club starts at 8%, it can be as high as 32% if your credit is less than stellar.
Lien and personal guarantee: Lending Club requires a UCC-1 lien on loans and lines of credit of more than $100,000, which covers your business’s liquid assets (inventory, cash and accounts receivable), but not real estate or your personal property, according to the company.
Borrowers still have to personally guarantee loans and lines of credit of less than $100,000, which means failure to repay the loan puts your personal assets and credit score at risk. However, this is a common stipulation for small-business loans that don’t require collateral.
Startups are out of luck: Lending Club requires at least two years of operating history and a minimum $75,000 in annual revenue, so startups — which have a very difficult time getting outside financing in general — will not qualify.
Bottom line on Lending Club business loans
Lending Club isn’t ideal for all entrepreneurs — especially those who will qualify for a bank loan and can wait the several months it will likely take to get one — but it offers a solid option compared with other online lenders.
Check what terms you would qualify for by starting an application on Lending Club:
Learn MoreApply on Lending Club’s secure site
Find and compare small-business loans
If Lending Club is not for you, NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged lenders by categories that include your revenue and how long you’ve been in business.
Compare business loans
NerdWallet staff writer Emily Starbuck Crone contributed to this article.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
This post has been updated. It was originally published on May 28, 2015.
Image via iStock.
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