Online Non Bank Models for Small Business Term Loans

Last week we talked about a couple different online lending models for small business– Merchant cash advances and invoice finance platforms.  Today, we look at small business terms loans.

Small business can mean many things, from micro small business, to Mom & Pop under $2 million to firms in the $5M to $10M range. Small business is the farming of the modern era, it is seven days a week, 24 hours a day, and has all the characteristics of the family farm, except land. I did a post around Why Banks don’t lend to Small Business – see here and here

Not too long ago, most small businesses had very few options when financing their purchase orders, inventory, equipment, etc. Up until recently, besides a small business going through a bank (or credit cards), their only option was merchant cash advances.  In fact, a study sponsored by the insurance company Euler show that up to 80% of SMB fail due to cash management issues.

Small-Business Online Term Loans - examples

Small business lending is typically loans for less than $250,000. I like to break the online term loan market into those that offer loans under $250K and those greater than $250K.  As you can see from the Federal Reserve data below, many small businesses under $1 million have applied online for loans.


While this is a growing field, I will look at a few key players including Intuit, OnDeck Capital and Kabbage compared to Merchant Cash Advances below:

Table: Comparing a Sample of Online SMB Lenders

  QuickBooks Line of Credit Powered by OnDeck OnDeck Capital Kabbage Paypal Working Capital Merchant Cash Advance (generic)
Lending Range $50,000 to $100,000 $5,000 - $250,000 $2,000 - $100,000 $1,500 - $85,000 $5,000 - $150,000
Terms 12 months 3 to 24 months 1-6 months No fixed maturity date, but typically takes 1-18 months 3 - 12 months
Estimated Average APR Range 9 to 19% 40-80 % 40-80 % 15-30%
Approval Time As fast as one business day Same Day Same Day Same Day 3 Days

Kabbage recently indicated their average line of credit is about $25,000, borrowed in regular installments of about $6,000. They have comparatively short payoff period length and size of its loans. Clients may choose to pay off their loans within two intervals, either six months or 12 months. When you sign up for Kabbage, it syncs with your company's data sources (a checking account, accounting software, or shipping partner, for instance) to evaluate risk, credit history, and to help determine the size of a loan. Kabbage is originating $1 billion in loans each year, which definitely stacks up against the competition.

OnDeck Capital lends mainly to mom-and-pop shops that need $50,000 or $100,000 or $200,000 to buy new equipment or purchase inventory. OnDeck has a multi-faceted model for funding their loans and their recent partnership with JPMorgan Chase put a collective approval stamp from the bank giant on new models for managing small business credit.

Next, we will look at what a small business does if they need more than $250K in term loans.

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