Posted in Entrepreneurial Funding Blog Posts

Non-Bank Lenders

So far I have discussed Small Business Administration 7(a), SBA Microloans, and Credit Cards as funding options for a startup or new business venture. Another lending option an entrepreneur should consider is non-bank lenders. Non-bank lenders are also referred to as “Alternative Lenders,” which provide a range of loan options outside the traditional bank loans. The approval for a loan is a lot faster and easier. However, percentage rates are also a lot higher. As the adage says, “Everything comes with a price.” There are several top alternative lenders, and each has its pros and cons.

Attaining capital for a new venture can seem like a never-ending battle. Especially if there are continual growth and your initial investment cannot cover expansion costs. It is imperative that an entrepreneur have access to the funds necessary to keep the business running and also have an affordable repayment plan. It is one thing to need money to make money, but it’s another not to be able to afford the money you need. Assessing a lender’s repayment rates and terms are imperative before making a final decision. Faster and easier can sometimes come off as a “Get rich, quick scheme” if one is not careful.

The Small Business Administration, Office of Advocacy, defines non-bank as “Lenders that provide a range of products and services, such as merchant cash advances, business lines of credit, and installment loans, the latter two of which may mimic similar products offered by banks.” (SBA.gov) Non-banks should be considered for individuals that credit issues but are actively opening a business or those who need immediate funds and cannot necessarily wait the length of time it takes to receive from a bank lender.

Here are four highly rated non-bank lenders:

Fundation – offers term loans for equipment or expansion improvements and working capital loans when operating cash is low. Loan range from $20,000 to $500,000 with annual interest rates ranging from 7.99% to 29.99%. (Fundation.com) Repayment terms are from 1 to 4 years with two pay frequencies. Minimum requirements include a good credit rating, $100,000 in annual sales, and in business for at least year with three employees.

Kabbage – offers lines of credit that range from $2,000 to $150,000. Repayment must be made with six to twelve months; fees are associated instead of interest. Depending on the loan, fees are 1 to 12 percent of the line of credit. Kabbage applications require your business account to be linked to the application for review and only takes ten minutes receive a yay or nay. Once approved,k Kabbage makes funds are available immediately for use. (Kabbage.com)

Accion – offers microloans specifically for small business startups. Credit scores can be no lower than 575 and entrepreneur must be able to prove a steady cash flow of $2500 and be in business for at least 3 months. Loans amounts range from $10,000 to $100,000 with percentage rates starting at 10.99%, and payments must be made on a monthly basis until the loan is paid. Accion offers loans based on state. For North Carolina, they offer loans for daycare services, food and beverage small business, startups that are based in the home, and existing businesses. (Accion.com)

OnDeck – offers fixed rate loans up to $500,000 and lines of credit up to $100,000 to individuals who have been in business for a year with at least a 500 credit rating and annual sales of $100,000. Repayments must be made with three years and paid on a weekly basis. Annual percentage rates range from 9.99% to 13.99%. (OnDeck.com)

Consequently, “Non-bank loans and online loans present an opportunity to procure capital more quickly and more easily. In turn, small businesses may be able to manage financial emergencies better or take advantage of unanticipated growth opportunities.” (SBA.gov) In my opinion, non-banks have similar percentage rates to credit cards but have higher limits to loan. The great thing about non-banks is you have options to pick which one fits your business needs.

Sources:

Office of Economic Research Staff (n.d.) INTEREST RATES AND NON-BANK LENDING TO SMALL BUSINESSES. Small Business Administration Office of Advocacy Retrieved via https://www.sba.gov/sites/default/files/advocacy/Interestratesissuebrief508compliant.pdf

Fundation (n.d.) Loan Products Retrieved via http://www.fundation.com/borrowers/

Kabbage (n.d.) Business Loans Retrieved via https://www.kabbage.com/?afsrc=1&refid=cj&PID=3934861#

Accion (n.d.) Loan Types Retrieved via http://us.accion.org/how-to-apply/loan-types/north-carolina

OnDeck (n.d.) Business Loans Retrieved via https://www.ondeck.com/business-loans

5 thoughts on “Non-Bank Lenders

  1. Tosh,

    This is very useful information to have the amounts of loans available from the different non-bank lenders. Reading through them all I think Accion would be most useful for my business because they specialize in homebased businesses. It’s good to know that this is available and I may need to take advantage of these opportunities one day.

    Thanks,
    Mackensie

  2. Great information. Check out the SequoyahFund.org for another source of lending and you may want to look at CDFIs to see if there is one near you for a business loan.

  3. Another way to get funding, and this is sort-of a stretch, is to use peer lending networks. They operate just like bank loans, but many peer lenders invest a small amount of money, rather than one person lending a large amount. This means the chances of approval are high, especially if you are low risk for default. This way, you can avoid bank fees, scrutinization, and many other aspects of banking that most people wish to avoid. Lending Club is a great place to apply for a loan if you want to get started with your own business.

  4. Great post, Toshia.
    In addition to your list, there are also non-bank funding options such as factors, asset-based lenders, and private investment resources that might be useful. But, as you point out, they all come with a price. The three I listed above generally have higher fees and should probably only be used as a last resort. Yet, those options are available and can be useful in a pinch.

  5. Tosh,
    A lot of the information in this post was new to me, so I really enjoyed hearing about it. It’s great to know that there are other sources of funding out there for businesses. I can definitely imagine how using one of these platforms would be advantageous.

    Austin

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