While it’s true that traditional banks are once again lending to small businesses, their lending requirements are still very strict and their lending process is more arduous than it has ever been. Businesses with short operating histories, no credit history, and a demand for quick access to capital need not apply.
However, small businesses do have another option which has become available in the last several years – online lenders. This new lending model has generated billions of dollars in small business loans and propelled the staggering growth of two of the industry’s market leaders – LendingClub and Funding Circle.
Online lenders have proliferated over the last several years due to the void left by traditional lenders in the small business market. Thanks to financial technology (fintech), these lenders have the ability to assess small businesses for their ability to repay loans based on an entirely new range of data. Cash flow and market potential are heavily factored into the equation with less reliance on operational history and business credit. However, most online lenders still rely on the business owner’s personal credit score, but it doesn’t have to be perfect to obtain capital at a reasonable rate.
LendingClub vs. Funding Circle
|Rates (APR)||10.00% – 35.50%||4.99% – 27.79%|
|Loan Amounts||$15,000 – $300,000||$25,000 – $500,000|
|Time to Funding After Approval||2 – 14 days||7 – 14 days|
|Origination Fees||1.99% – 6.99%||0.99% – 6.99%|
Founded in 2007, LendingClub is just two years older than Funding Circle, but it dwarfs its younger rival in loan originations $7.62 billion to $2 billion. Both are peer-to-peer (P2P) lenders based in San Francisco, and both offer high loan amounts with competitive loan rates and terms. Both lenders use proprietary algorithms to crunch through mountains of data in determining whether you have the ability to repay the loan. There is not a lot that separates the two lenders, but a closer comparison may find just enough for choosing one over the other.
Loan Terms and Costs
LendingClub offers small business loans between $15,000 and $300,000. Lines of credit are available for $5,000 to $300,000. Loan terms range from one to five years with no prepayment penalty. The current APR can range from 9.77 to 35.7 percent depending on credit qualifications, the loan amount, and the loan term. The APR includes the origination fee, which can range from 1.99 to 6.99 percent, which is deducted from the loan amount.
To qualify for a business loan from LendingClub you need a personal credit score of 600 or better. LendingClub also wants to see at least one year of operating history and a minimum of $50,000 in annual business revenue. You have to own at least 20 percent of the business and be free of recent bankruptcies or tax liens. LendingClub borrowers tend to exceed these requirement with an average credit score of 700 and annual business revenues in excess of $200,000.
The application can be completed online in less than 15 minutes. Documentation to verify your information is not required until you have been approved for a loan, which could take less than 15 minutes. Once you are approved, funding can take place in as few as two days, but you should plan on at least a week or two.
Loan Terms and Costs
Funding Circle lags behind LendingClub in terms of loan originations, but it is doing everything it possibly can to compete head on. It is doing this by offering higher loan amounts, slightly lower interest rates, and more flexible loan terms. Funding Circle’s loan range starts higher and ends higher — $25,000 to $500,000.
Repayment terms start at six months and go out to five years with no prepayment penalty. For the most creditworthy borrowers, Funding Circle currently offers a low starting APR of 7.4 percent, which includes the loan origination fee. The APR is 36 percent at the top end. The loan origination fee can range from 0.99 to 6.99 percent.
Funding Circle’s loan qualifications differ slightly from those of LendingClub. It requires a minimum credit score of 620, but it has a minimum two-year operating history requirement. Although it has no minimum requirement for annual business revenue, you increase your chances for approval and a larger loan amount if you can show strong, stable revenue.
With minimal credit or business requirements, Funding Circle’s application process is very quick. After you submit your application online, a loan specialist will get in touch with you within 24 hours to request documentation and verify your information. The loan decision is made within hours after that. It can take from one to two weeks to receive your funds following approval.
LendingClub vs. Funding Circle: Final Thoughts
As you can see, the two lenders are very similar and, being that they are among the market leaders in their industry, you really can’t go wrong with either. Funding Circle might get the edge if you needed access to a larger amount of capital (more than $300,000) or if you are creditworthy enough to qualify for its lower interest rate. You might consider LendingClub if you have less than two years of operating history.
If you pay attention to reviews, LendingClub might get the edge for what appears to be stronger customer support. LendingClub has far more positive reviews than negative in that regard while Funding Circle has more negative reviews than LendingClub in matters concerning customer service.
In the realm of small business financing, both LendingClub and Funding Circle have the edge over traditional competitors, especially for the speed and ease with which borrowers can obtain financing. It may be worthwhile to obtain a quote from both, keeping in mind that both do a hard pull on your credit. You can minimize any potential damage to your credit by making sure you submit your applications within a few weeks of one another.