Being first has its benefits. Just ask serial entrepreneur Renaud Laplanche, the CEO of Lending Club, who pioneered Peer-to-Peer lending back in 2007. While the field has grown to be very crowded in a very short time, Laplanche's sense of timing paid off; their head start, combined with a smart business model, has led to Lending Club thoroughly dominating the non-traditional lending field.
While the company initially focused on individual borrowers, it has diversified into business lending. It now offers two key advantages: rates for borrowers with excellent credit that are cheaper than traditional bank loans, and a lower barrier of entry for customers with less than sterling credit. As a result, they've outgrown the field they pioneered, and are now partnering with the same banks against whom they once competed in order to meet high demand.
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|Reviewed by Expert Market:||02/24/2016|
Lending Club focuses on keeping things simple. That means a short loan process -- typically between five and ten minutes -- and a limited number of options.
Business loans are disbursed as a lump sum with a one to five year repayment term. The loan is intended for a significant one-time expense. Borrowers are typically given multiple quotes.
Business Line of Credit
There is no fee to open a business line of credit, and interest is only paid on money withdrawn against the line of credit. That makes it an attractive option for businesses that only need the occasional small infusion of cash.
APR, which includes origination fees and other fees, ranges from 8% to 32% for loans and from 6% to 21% for lines of credit. There is an additional draw fee on line of credit transactions. Payments are monthly on loans and lines of credit, in contrast to some nontraditional lenders that require daily payments. Funding can be as quick as two days, or as long as two weeks, depending on the documentation required. Also, Lending Club does not penalize borrowers for early repayment.
Who Qualifies, and How to Apply
Businesses must prove that they have been in operation for at least two years, which tracks with the industry standard but also means that newer businesses and startups are shut out. The borrower must have at least a 20% ownership stake in the business, and neither the borrower nor the business should have any recent bankruptcies or tax liens. While Lending Club states that its borrowers should have "at least fair or better personal credit," borrowers should be aware that while the barrier to entry is lower, it's still very much present. Estimates of loan rejections by Lending Club run between 80 and 90 percent.
On the brighter side, the company does not require collateral for loans or lines of credit less than $100,000. They also do not require appraisals, title insurance, in-person visits, or even a business plan.
Other Services Offered
As a non-traditional lender, Lending Club is willing and able to offer loans to a wider variety of customers than banks. However, it should be noted that their involvement with the customers extends only as far as issuing and servicing the loan. In other words, unlike a bank, Lending Club does not offer complimentary business services (financial management, payroll, investment services and other common services) typically available to bank customers. This need not be a drawback as such, but does add another layer of research and comparison shopping to the mix for businesses seeking those services.
Without Lending Club, Bison Supply would not exist. The company's owner had cashed out his 401k to get started, but found that his funding options were limited beyond that because he had no collateral with which to secure a loan. Thanks to their loan, the business was able to outgrow the owner's spare bedroom and garage. A second loan enabled the business to buy in volume, saving them money while further expanding the business. It's now an operation with seven employees and four million dollars in revenue.
For borrowers in 49 of 50 states -- as of this writing, the company doesn't service Iowa -- Lending Club can be a viable option for some businesses. Startups are left in the lurch, and those with bad credit may pay dearly for their loans -- if they qualify. Interest rates for loans are high, albeit much lower than many of Lending Club's competitors which rely on factored interest rather than a fixed APR to determine rates.
The best rates go to their prime borrowers, who would typically qualify for loans through traditional channels. Subprime borrowers coming to Lending Club as a lender of last resort, needless to say, will pay much more. Furthermore, their numerous fees add up quickly. But for businesses that have a solid business plan, positive cash flow, and a clear eye on the big picture, the potential rewards may outweigh the risks.