When it comes to looking for a small business loan it is important to understand that you can borrow from an individual or company that has agreed to make their money available to borrowers at a set interest rate, rather than just a bank. It’s also called crowd-lending, and two companies have made a niche for themselves by being part of the P2P industry.
LendingClub and Prosper are two major crowd lenders that serve two purposes. First, they allow people to invest their money with them; that money goes to fund the loans the companies offer. Secondly, LendingClub and Prosper allow borrowers, especially business owners, to apply for loans that come out of the money invested with them.
LendingClub vs. Prosper: Comparison
|Rates (APR)||10% – 36%||6.95% – 35.99%|
|Loan Amounts||$35,000 – $300,000||$2,000 – $35,000|
|Time to Funding After Approval||2 – 14 days||N/A|
|Origination Fees||1.99% – 6.99%||1.00% – 5.00%|
Prosper Personal Loan Product for Businesses
Prosper was founded in 2006 on an innovative new model: investors could fund loans and make money back on the interest. The company itself would make profits based on origination fees. At first, Prosper had a hard time; its approval standards were incredibly low, resulting in a high number of loan defaults and angry investors who were losing money.
In order to get a loan from Prosper, you’ll need a credit score of 640 or higher. Since the company no longer lends to subprime borrowers, returns for the investors are higher, and Prosper is able to attract more investors – which means more funds are available for borrowers.
Loan terms are either three or five years, and borrowers can apply for any amount between $2,000 and $35,000. These loan terms range from 3 to 5 years.
When you apply, you’ll be assigned a rating based upon your credit risk. An AA rating, for instance, means you’re a low-risk borrower who has a high credit score; you’ll get the best interest rates – currently 5.99 percent APR. The high-end rate is up to 35.99 percent APR, and high-risk borrowers are more likely to have the high-end rate.
Your rating also dictates your origination fee. While an AA-rated borrower may only pay a 1 percent fee, a high-risk borrower could pay 5 percent. To reiterate, origination fees range from 1 to 5 percent.
The ratings go down from there; A through E, with HR (high-risk) being the bottom level. A high-risk borrower has a credit score in the lower ranges of approval, usually from 640-660, or has a high debt-to-income ratio or other factors that Prosper feels would affect the borrower’s ability to pay back the loan.
Prosper loans are available in 32 states.
LendingClub’s Small Business Loan Product
LendingClub began a year after Prosper, and their primary claim to fame is that if you’ve been denied by Prosper, you might be able to get approved by LendingClub. Their credit score threshold is lower – only 600. While Prosper offers a personal loan product that can be used towards business expenses, LendingClub offers a legitimate small business loan product.
While Prosper personal loans top out at $35,000, borrowers can borrow up to $300,000 from LendingClub. These loans come at comparable rates ranging from 9.77 to 35.71 percent APR. Repayment terms range from 1 to 5 years as opposed to 3 to 5 years. The origination fee on a LendingClub business loan ranges from 1.99 to 6.99 percent, but there are no early repayment penalties.
LendingClub looks at more than just the credit score of applicants. Prospective borrowers must be in business for at least 12 months, and they must have at least $50,000 in sales annually. There shouldn’t be any bankruptcies or tax liens in recent history. A borrower must have a 20 percent stake in their business, and “fair or better personal credit” is required.
LendingClub isn’t available in every state; Iowa and Idaho don’t currently allow borrowers to go through that company for a loan.
LendingClub vs. Prosper: What’s the Good News?
You might be thinking that both LendingClub and Prosper have too many drawbacks to consider for a loan, but there are several benefits with both companies that you won’t find with a traditional bank or lending company.
With LendingClub, no part of the loan application process hits your credit rating; it’s considered a ‘soft inquiry,’ so it won’t affect your credit score. You can apply, view your grade, watch investors offer to fund your loan, and choose the loan options you like best – all without a hard credit inquiry. Since the loans are unsecured, you don’t need to worry about trying to find collateral.
Interest rates are fixed at both companies as well, which means your payments will always stay the same. All fees are disclosed on the lenders’ websites.
Once you’re approved, the loan proceeds can be in your bank account within several business days. Everything is done online, and even payments are set up as automatic for added convenience. If you decide to pay the loan off early, there are no prepayment penalties either.