If you’re a small business owner and you need an infusion of capital to grow your company, an online lender option could be the best fit.
Unlike traditional banks, online lenders don’t use extensive applications requiring years of tax returns. By answering a few basic questions and linking your business accounts, you can get access to thousands of dollars in cash in just a few days, or in some cases, just a few minutes.
There are lots of online lenders out there, and each has its own way of doing business. Some online lenders may be better suited to your needs than others.
Kabbage offers qualified businesses access to lines of credit up to $100,000.Through their quick application process, Kabbage reviews your business accounts (business checking, PayPal, Square, QuickBooks) to get a full picture of your business.
Rather than repeatedly applying for a loan every time you need extra capital, you withdraw from a line of credit as needed. For instance, you might be approved for up to $50,000, but only draw $5,000 to cover the payroll of two new part-time employees for a month. A few months later, you could borrow another $2,000 to do an emergency inventory restock.
The funds are always available, and they’re accessible online or right from your phone using Kabbage’s mobile app.
Each time you borrow against that line of credit, you get between six months and one year to pay it back. Rather than charging interest, Kabbage assesses a monthly fee, between 1 and 12% of your total principal, when you qualify.
While there are no prepayment penalties, a borrower doesn’t save much by paying the loan off early, since the highest fees are paid in the first two months.
Pros: Ease of use; generous borrowing standards even for businesses without an extensive credit history, plus you can find out if you qualify in just a few minutes. For a limited time, HostGator is giving away a $100 Amazon* gift card to those who qualify.
Cons: High fees in the first couple of months; shorter loan terms.
PayPal Working Capital
PayPal Working Capital is ideal for businesses that already process their sales through PayPal. Once you confirm your data with PayPal, it uses your sales history to determine your creditworthiness and the total loan amount you qualify for. Like Kabbage, it takes only a few minutes, and applicants get a decision quickly.
PayPal Working Capital differs from Kabbage in several ways:
- They offer set loans, rather than access to a line of credit. Total loan amounts vary, but are capped at a percentage (usually 15%) of a business’s yearly sales, with a maximum of $85,000.
- Instead of paying the loan back on a monthly basis, PayPal takes a certain percentage of your sales each day. If you have no sales, then no fees are deducted.
- You can only apply for another loan once a previous loan is paid off. With Kabbage, you have access to a line of credit, and each withdrawal is considered a separate loan in terms of its repayment schedule.
- Rather than assessing a monthly fee, PayPal Working Capital charges a set fee for the entire loan, calculated based on the loan amount, your repayment percentage, and your PayPal sales history. The higher your repayment percentage (i.e., the amount of your daily sales PPWC takes), the lower your fee.
- While repayment is based on daily sales, every 90 days a minimum payment is due. If their cut of your sales over that 90-day period doesn’t equal at least 10% of your total loan amount (the loan itself plus the fixed loan fee), then you’ll have to pay the difference.
PayPal Working Capital is great for someone who’s already using PayPal to process their payments, and who needs a bit more flexibility when it comes to repayment.
Pros: Repayment based on sales, rather than on time. Seamless integration with existing PayPal sales data.
Cons: Only available to businesses that use PayPal to process transactions; borrowers must reapply for each additional loan, and can’t take out another loan until the previous one has been repaid.
LendingTree is a peer-to-peer lender, though many of its so-called “peers” are really institutional lenders — like banks or mortgage companies. It acts as a marketplace where prospective borrowers enter some basic information, and lenders then compete for their loan. LendingTree isn’t solely in the small business space, and it offers personal loans, mortgages, and auto loans, among others.
It also offers four different types of business loans: long-term loans, short-term loans, business lines of credit, and alternative financing (including cash advances and startup financing). All of these loan types have different requirements, different repayment periods, and different interest rates. Unlike many other online lenders, some LendingTree loans require a credit score, and even collateral. They do, however, offer much bigger loans than either Kabbage or PayPal Working Capital, and are thus more suitable for businesses looking to fund serious capital projects. These larger loans also have longer terms.
Since LendingTree acts primarily as a marketplace, a sort of matchmaker between borrowers and lenders, there’s less uniformity and more complexity. The application process has been streamlined, and borrowers should hear back within a few days’ time. But LendingTree lacks the simplicity of either Kabbage or PayPal Working Capital.
Pros: Lots of options, large loan amounts, and competitive rates from different lenders.
Cons: Some major loans require collateral and use your personal credit score to determine your level of risk, which can eliminate businesses whose owners have a checkered credit history, even if their business is doing well. Many LendingTree loans require a personal guarantee, which makes the business owner personally liable for the loan should the business go under.
Every small business is unique and has different financing needs. Before committing to an online lender, be sure to consider what’s most important to you, whether that be flexible repayment plans or easy access to funds.
We hope this overview helped you decide on a lender for your small business loan. Remember, for a limited time, HostGator is giving away a $100 Amazon* gift card to those who qualify for Kabbage.
*Customer will receive a $100 Amazon gift card upon submitting a qualified application to Kabbage by 11:59pm EST September 29, 2016 through the link provided in this post. The gift card promotion is being run by Endurance International Group. Gift cards will be delivered to qualified customers electronically October 29, 2016. Amazon is a trademark of Amazon Technologies, Inc. Amazon is in no way affiliated with or a sponsor of this promotion.
Henry Green is a freelance writer based in Austin, Texas who helps small businesses and entrepreneurs improve their online presence through marketing, social media, and website optimization.