Online Options for Small Business Term Loans > 250K

There are many online lending options offering small business term loans for under $250K. But what does a business do if they need more than $100K or $250K?  Recently the field has expanded for loans significantly higher than 250K.  When we go one step up from a micro or very small business and move into lower middle market, these firms have bigger needs for capital, perhaps to finance Machinery, or inventory or a building (or sales force).

How does a business owner compare the various online lending options now offered by both digital business platforms like Dealstruck, P2Binvestor, TheCreditJunction, InternexCapital and others that are getting into this space with technology first, investors and bank lines, and using the internet to originate deals?

This is not a space that marketplace lenders like On Deck, Lending Club and Prosper play in with SMB because their focus is on automation with no manual underwriting and thus loans under 250K.

Up until recently, besides a small business going through a bank (or credit cards), one of the few options was factoring and merchant cash advances. Merchant cash advances, where a business sells future credit card (and other) receivables in exchange for a lump sum payment, can have very high effective interest rates, often exceeding 50%.

What makes these new online sites appealing is that compared to a merchant cash advance, a line of credit is a much more affordable option to finance inventory than a MCA. A common non-APR based MCA “buy rate” is 25%, or 1.25. Most of these loans come with a 2-3% origination fee, which is withheld from the proceeds.

Table: Comparing Loan Characteristic for P2Binvestor, Dealstruck and The CreditJunction

  P2Binvestor Dealstruck TheCreditJunction Merchant Cash Advance (generic)
Maximum Amount That They Lend $250,000 - $5 million Business term loans up to 5000K, Lines of Credit up to 500K Flexible loan options from $500K to $5M, non formulaic credit review $5,000 - $150,000
Terms Revolving (average one year contract however) Anywhere from 6-48 months with a bi-weekly or monthly payment and APR. Terms loans have a fixed monthly payment, with terms up to 48 months in length. Normally 6-36 months 3 - 12 months
Estimated Average APR Range 12% - 20% Service a wide vary of borrower and rates are anywhere between 10% to 28% APR. Average rate is 14% to 19% (lines of credit – interest only, and term). No hidden fees Over 100%.
Approval Time 5 days Prequalify in less than 60 seconds. Sign contracts and get your money in as little as 2 days. 4 Days 3 Days
Minimum Credit Score To Get Approved No minimum Personal credit score of at least 600 N/A No Minimum
Personal Guarantee Yes Yes Yes No
Customer Profile B2B, U.S.-based, $500,000-15mm in revenue, 10%+ annual growth, trending toward cashflow breakeven, 2+ years in business, assets to secure the line (AR, inventory, monthly recurring revenue) Mid Prime business borrower – who can’t get a bank loan and whose alternative is factoring and MCA loans.Dealstruck has acceleration rights with the borrower which does trigger in the event of default, and the ability to enforce debt settlement. Manufacturers, suppliers & distributors between $2-$20M in annual revenue

 Source: Trade Financing Matters, Companies 

It is interesting to see how each company funds their loans. P2BInvestor lines of credit are funded from balance sheet, then packaged up in a diligence file and offered to their crowd for participation on a private, proprietary lending platform. Borrowers use a special online platform to draw funds from their account as needed, are required to upload a sales journal periodically to update eligible collateral, and use the platform to access comprehensive reporting for easy management and accounting. Line increases are available in 24 hours as needed. Dealstruck has their own bank lines and private sources. TheCreditJunction uses private capital. 

We believe these firms are helping to create options for a market that has been historically underserved and believe increased awareness is a good thing for the market.  

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