Small Business Confused About Alternative Lending Options Part II

When we think small business lending, we are usually talking loans less than $250,000.   Many non bank fintech companies have made forays into this space and it is getting increasingly crowded. Players include merchant cash advance companies who require some fixed percentage repayment based on daily total or credit sales, peer to peer lenders now known as marketplace lenders and still others such as payment processing firms and factors.

The biggest challenge these SMB had according to the Federal Reserve study was comparing online credit products for all these new options. As they say, it’s all in the fine print. For example, when comparing different lenders like Prosper, Ondeck, Lending Club or Kabbage, they will vary on a number of fronts including:

  • Maximum amount to lend
  • Terms
  • Estimated Average APR
  • Approval Times
  • Information Required (including operating history)
  • Minimum Credit Score (some lenders will not lend below a certain score)
  • Personal Guarantee required or not
  • Amount lent as percent of revenues
  • Payback on loan
  • Fees

Small business needs clearly stated product features and costs that are easy to understand and compare. Fees should be upfront, and late fees, prepayment penalties and policies on payments should be clear. That is not asking much.

As more small business turns to these alternatives to meet unmet credit needs from banks, this industry will continue to grow. It is filled with much promise and excitement.

But there will certainly be questionable practices. Right now, it’s Buyer Beware!

Trade Financing Matters will be launching its 30 Alternative Business Finance Vendors to Watch over the coming weeks. Please contact me at dgustin at f you are interested in learning more.

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