Having trouble getting a bank loan for your small business? Just 21.1% of small-business-loan requests were approved at big banks in December 2014, according to a Biz2Credit analysis. Meanwhile, alternative lenders, including peer-to-peer, merchant cash advance and other nonbank institutions, approved 61.8% of all small-business-loan applications.
If you’re in the market for a small-business loan, two potential alternative financing options include Lending Club, a peer-to-peer lending company, and online lender Fundation. But which company is right for your small business?
Lending Club
Learn MoreApply on Lending Club’s secure site (Read our Lending Club review)
Founded in 2006, Lending Club is the world’s largest peer-to-peer lending company and has originated over $6.2 billion in loans as of September 2014, according to Inc. magazine.
Here’s how it works: Lending Club allows business owners to apply on the site for loans, which are then funded by individual investors. The entire process is done online at the Lending Club website, cutting out traditional banks from the process.
For borrowers, the potential benefits are a fast and easy online application process, quick access to cash and a low fixed-rate loan with flexible terms. Investors can earn a solid return on their money with potentially less risk than other similar investments.
The company offers business loans up to $300,000 with rates starting at 5.9% to 29.9%. There’s also a one-time origination fee, which ranges from 0.99% to 5.99%, depending on the loan size, term length, creditworthiness of the borrower, length of business history and the business’ financial strength. That puts the average annual percentage rate between 8% and 32%.
The application process can be completed in less than five minutes, with the funds deposited in your bank within just a few days, according to the site. Loan terms range in size from one to five years with fixed monthly payments. There are no fees or penalties for early repayments, so you can pay off the loan at any time if you want to reduce your interest costs.
To be eligible for a business loan, Lending Club looks for companies that have been in business for at least two years and have at least $75,000 in annual sales with no recent bankruptcies or tax liens. You must own at least 20% of the business and have at least fair or better personal credit, according to the company. For loans under $100,000, no collateral is required, although you’ll have to personally guarantee the loan.
Fundation
Learn MoreApply on Fundation’s secure site (Read our Fundation review)
Founded in 2011, Fundation works a bit differently from peer-to-peer lending platforms like Lending Club. The company is actually a direct lender that delivers fixed-rate small-business loans using its own capital.
Loans range in size from $20,000 to $500,000, with loan terms from one to four years. You can apply for either a working capital loan up to $150,000, which comes with one- to two-year terms, or a business expansion loan up to $500,000, with two- to four-year terms.
The application process can be completed in less than 10 minutes, and the money is typically accessible within two to five days of loan approval. You’ll likely need to supply two years of business tax returns and three months of bank statements after an initial review of your online application, according to the company.
To be considered for a loan, you must have been in business at least two years, have two employees besides yourself, give a personal guarantee, have no recent bankruptcies and use the loan proceeds only for business purposes, according to the company.
Fixed interest rates on all loans start as low as 7.99%, although this doesn’t include origination fees, which start at 2%. Your actual interest rate will depend on your company’s profitability, your past payment history, credit history and the industry you operate in, according to a company presentation. The average annual percentage rate is between 8% and 30%.
Another benefit: There are no early-repayment penalties, so you can make additional repayments if you want to save money on interest costs. Loan repayments are debited from your account twice a month.
Comparing Lending Club and Fundation
It’s easy to see the similarities between Lending Club and Fundation when you compare the figures. Both lenders offer fixed-rate term loans at a similar cost, promise an easy application process with a fast time to funding, and have similar requirements for loans.
There are a few differences. For one, Lending Club requires annual sales of at least $75,000 and the borrower must own at least 20% of the company. Fundation likes applicants to have at least five years in business, annual sales or revenue greater than $250,000 and a personal FICO score of 600 or greater.
The bottom line is, both Lending Club and Fundation look like solid alternative lending options, especially if you don’t qualify for bank loans, have no collateral to offer and don’t have the time to wait up to six months to get funding.
| Lending Club | Fundation | |
| Loan size | $5,000 to $300,000 | $20,000 to $500,000 |
| Length of loan | 1-5 years | 1-4 years |
| Loan Type | Term loan | Term Loan |
| Total annual cost of funds | 8% to 32% APR | 8% to 30% APR |
| Time to funding | A few days | Two to five days |
| Qualifications | Two years in business, $75,000+ in annual sales, no bankruptcies or tax liens, 20%+ owner in the company, fair or better credit score, personal guarantee | Two years in business, two employees besides yourself, a personal guarantee or collateral, no recent bankruptcies and use the loan proceeds only for business purposes |
| Origination fees | .99% to 5.99% | Starts at 2% |
| Apply on lenders’ secure sites |
Apply via Lending Club (Read our Lending Club review) |
Apply via Fundation (Read our Fundation review) |
If neither Lending Club nor Fundation is 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 them by categories that include your revenue and how long you’ve been in business.
Find and compare the best small-business loans
Compare business loansThis post has been updated. It originally published Jan. 21, 2015.
Image via iStock.
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