We’ve said before how important it is to cultivate a relationship with your banker.
Such a relationship will be important not just throughout the lifespan of your business but particularly when you want to craft an exit.
That said, sometimes market conditions, or the conditions of your business, call for alternative forms of finance, and in this article we will discuss just three of the many possibilities in this growing space.
Of the many options in the fintech space, Lending Club is the most like a traditional bank. They will require that you’ve been in business at least two years, with annual revenues of at least $75,000.
They will also make sure that the borrower has a minimum 620 credit score, with no recent bankruptcies, and at least 20% ownership of the business.
All these factors get put into their internal rating system, and then once approved, your loan gets put into their marketplace, where various people can buy part of your loan. Once the note is fully funded, which can take as few as three days or as many as 21, the money is disbursed and you’re held to regular payments across terms like 36 months.
They don’t offer revolving credit and the rates can vary from 7.77% – 35.11%. Depending on how good your credit profile is, it’s an interesting alternative if conditions don’t allow for a traditional bank loan.
If Lending Club is most like a bank, Kabbage is most like our future powered by artificial intelligence. The platform is entirely algorithm-based, assisted by machine learning. There are no human parts in its credit decision process.
You create an account and give Kabbage access to various accounts you use as a business owner, be it your credit card processor, your bank account, your email software, your social media accounts, and using all these different factors they will create a revolving offer against a 6-month repayment window.
The effective interest rates can range from 15 – 50%, again depending on your business, rather than your personal credit, profile. There are no minimum revenue requirements, no personal guarantees, and with over $3B loaned since 2009, there is clearly a need for this type of financing.
PayPal Loans/PayPal Working Capital
The most specialized of the options we’re discussing in this article is Paypal Loans, which has also been called Paypal Working Capital. This option is only available to you if any part of your business accepts payments via PayPal, because the funding mechanism examines your PayPal activity in the past 12 months and will allow you to borrow as much as 18% of topline revenue processed through PayPal (up to $97,000).
Repayment is made as a percentage (which you can determine, depending on how quick/slow you want the repayment horizon to be) of each incoming sale, so repayments can be made daily if you’re processing payments at such a rate. PayPal provides the capital for a fixed fee, so there’s technically no interest charge, though you can calculate effective APRs to vary between 15 – 30%.
We also have access to some local resources that may be able to help you. Give us a call and let us see if we can help!