LendingClub is a peer to peer marketplace that offers loans or lines of credit to residents in all U.S. states, except for Iowa. If your loan application has been rejected from banks or credit unions, LendingClub could be a good alternative to fulfill your small business financing needs. Like traditional lenders, LendingClub requires a minimum of two years in business to qualify for its loans or lines of credit, but businesses only need $75,000 in annual revenue to be eligible. In addition, businesses with strong credit scores can benefit from single digit APRs offered by this lender.
LendingClub Review: Should You Apply?
Overall, LendingClub is a good option for small businesses with fair to better credit scores or businesses that need funds quickly. LendingClub offers business loans and lines of credit up to $300,000 with terms up to five years. Using data released for 2015, we found that the average amount borrowed for small business loans was $16,297, and most businesses took out loans for either three or five years. APRs at LendingClub range between 7.77% and 35.11%. Although the upper range of these rates is higher than rates from traditional lenders, they are lower when compared to rates from other online lenders, where APRs can sometimes exceed 90%. Borrowers with good credit scores may be able to benefit from single digit APRs.
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To qualify, your business must be at least 2 years old with annual revenue of $75,000 and no recent tax liens or bankruptcies. The borrower must be a U.S. citizen who is at least 18 years old and owns at least 20% of the business. While there is no required credit score, LendingClub prefers if at least one owner has a credit score of 620 or above. Personal guarantees are also required. If you want to borrow over $100,000, you will need collateral. Even without a 620+ credit score, you may still qualify if your business is financially healthy and has strong sales.
If you make early payments, LendingClub is a good choice for your business. Borrowers who pay off their loans early can save money on interest since LendingClub doesn’t charge prepayment penalties or interest after a loan has been repaid.
Even though there are no prepayment penalties, there are other fees associated with LendingClub loans. An origination fee between 0.99-6.99% of the loan amount will be deducted from your funds before LendingClub deposits them into your account. There is also a $15 fee for unsuccessful payments or payments made by check. If you make a late payment, you will also have to pay the greater of $15 or 5% of the payment.
You can receive funds into your account anywhere from two to 14 days, depending on the amount you request. This is faster than typical processing times at a bank, but slower than at other online lenders. This lender is also a good option if you need to take out multiple loans. You can take out a second loan while still repaying your first if you have a record that proves you can make on-time payments.
LendingClub is also a great choice if you’re looking to build your business’ credit score. The lender will report the timeliness of your payments to Experian, which can help build your business credit. However, if you default on your loan, LendingClub will also report to Equifax.
LendingClub will never disclose your information to any third parties besides the credit reporting bureaus, and investors and borrowers will never discover each other’s identities. LendingClub does not lend to businesses in certain industries, including financial investing and gambling, and cannot provide loans to businesses in Iowa.
LendingClub Business Loans and Lines of Credit Features
LendingClub lists fixed interest rates between 5.9-25.9% on its website, and APRs range from 7.77% to 35.11%. From May 2015 to May 2016, the average fixed interest rate was 13.44%. LendingClub will only charge interest on the remaining loan balance, so paying early will save you money on interest.
In October 2015, LendingClub launched a line of credit product for small businesses. It has the same requirements as the loan but allows for more flexibility since you can choose the amount to borrow as needed. The cost for this flexibility is a 1-2% fee every time you draw from your line.
|How Do I Qualify for a LendingClub Loan or Line of Credit?|
|Loan and Line Amount Range||$5,000 - $500,000|
|APR Range||9.77% - 35.98%|
|Loan and Line Terms|
LendingClub Application Process
LendingClub has an automated application process, using its technology platform to analyze business data and determine a business’s risk. With this information, the lender will give you a loan offer. Once you accept the offer, LendingClub will verify your identity, and you’ll need to provide business bank account statements for the past three months, an IRS Form 4506-T and business tax returns. During the application process, LendingClub will also conduct two credit checks: the first is a soft pull during the pre-qualification stage and the second is a hard pull at the end of the application.
WebBank, an FDIC-insured bank established in Salt Lake City, Utah, issues loans on behalf of LendingClub. Even though LendingClub is a marketplace lending partner, investors never directly invest in loan products. Instead, they buy Member Dependent Notes, and LendingClub acts as the middleman in the process of creating loan offers.
How Does LendingClub Compare to Other Online Lenders?
Compare Small Business Loans
We compared to LendingClub loans and lines of credit to other top online lenders that may offer more lenient eligibility requirements, fewer fees or larger loan amounts.
LendingClub vs. Kabbage
If you can’t meet LendingClub’s requirements, Kabbage is a comparable choice for a line of credit up to $100,000. Kabbage only provides lines of credit up to $150,000 with 6- or 12-month terms. You won’t be able to save a significant amount on interest if you prepay your outstanding balance since the initial payments are higher than the remaining ones. However, Kabbage has fewer requirements than LendingClub as it only requires a business to be 1 year old with $50,000 in annual revenue to qualify for up to $100,000 (there is no minimum credit score required). To qualify for more, you'll need to be in business three years with $500,000 in annual revenue. If you need more than $100,000, we suggest a LendingClub line of credit.
LendingClub vs. OnDeck
If you own a newer business, OnDeck is a better option. OnDeck offer both business loans up to $500,000 and lines of credit up to $100,000. OnDeck requires businesses to be at least one year old with a minimum annual revenue of $100,000 and business owners to have a minimum credit score of 500. OnDeck requires either daily or weekly repayment, which could disrupt your business’ cash flow.
LendingClub vs. Prosper
If you’re looking to borrow a smaller amount through a personal loan, Prosper is a good choice. You can borrow an unsecured personal loan from Prosper to use for business needs up to $35,000. However, if you apply online for a business loan, Prosper will direct you to their partner, OnDeck.