How the Small Business Loan Application Process Works at Lending Club

Eric Goldschein

Eric Goldschein

Eric Goldschein is a staff writer at Fundera. He covers entrepreneurship, small business trends, finance, and marketing. He was previously the managing editor of SportsGrid.com, and has written for Business Insider, the Huffington Post and more.
Eric Goldschein

Marketplace lending is a relatively new phenomenon in the world of debt financing, and no company has done more to push the innovation forward than Lending Club.

It’s grown from its start as one of the first Facebook applications in 2006 to become the largest marketplace lending platform in the world, helping borrowers with over $20 billion in loans. Small business owners who are looking for alternative forms of financing should probably start here.

Since there are now many different small business loans in the online lending space, small business owners should know what sets Lending Club apart from the rest.

The Lending Club Difference

According to Linda Li, Director of Business Development and Marketing at Lending Club, the main advantages of working with this platform is the combination of good prices and a process that’s fast and easy.

In general, banks offer good rates, but they can be slower and more difficult to work with. Alternative lenders offer a fast, easy process, but can charge very high prices that are not always fully transparent. Lending Club’s goal is to provide the best of both worlds.

“If a small business can get a traditional bank loan, we aim to get them a loan at a similar price, but in just days instead of weeks or months,” says Li. “If the business can’t get traction with a traditional bank loan and is considering high-cost alternative lenders, we aim to get them a loan that’s just as fast and easy, but at a lower price with transparency about the annualized interest rate and lower payments by using longer terms. To make it easy, we have an online application that takes only minutes to complete. Also, every business gets a dedicated Client Advisor who is their single point of contact throughout their time working with us.”

Small business owners looking for a loan can visit Lending Club to apply directly. The task is fairly straightforward, but here’s a rundown of the application process, to help you decide whether you’re the right fit for loans through Lending Club.

What kinds of small businesses use Lending Club?

All kinds of small businesses apply for loans through Lending Club.

“We see the gamut of small businesses, in dozens of different industries,” says Li. “Businesses inside that range make anywhere from $75,000 in annual revenue to $10 million, so there’s an enormous range.”

In terms of location, borrowers come from 49 states—the only exception is Iowa. (The situation for investors is slightly more complicated, but the vast majority of states allow both investing and borrowing through the platform.)

There’s no typical business client for Lending Club, outside of it being geared towards small businesses rather than large corporations. There are, however, certain industries that are blacklisted from most forms of lending. For Lending Club, those industries are adult entertainment and gambling businesses, as well as those in the financial investing business.

“Right now, adult entertainment business or gambling businesses, as well as other businesses that do financial investing, cannot receive loans through Lending Club,” says Li.

What are the nuts, bolts, and terms of loans through Lending Club?

Every business needs a loan for a different reason, and they all bring unique situations to the table—including financial risk factors, business credit, and personal credit—so, accordingly, the terms of every loan through Lending Club will be different.

Here are the typical characteristics of a loan offered through the platform:

  • Amount: From $5,000 to as much as $300,000.
  • Repayment term: Between 1-5 years (Longer terms mean lower monthly payments).
  • Type of interest rate: Interest rates for loans through Lending Club are fixed, and range between 5.9% and 25.9%, depending on the financial risk of the business.
  • Origination fee: 0.99% to 6.99%.
  • APR (or Annual Percentage Rate): Starts at 7.8% and goes up to 31.9%.
  • Payment term: Monthly (not daily or weekly).
  • Early pay-off: This is a major one for borrowers—they can save money by paying the loan off early. There’s no fixed amount that’s due and no prepayment penalty for paying off the loan in its entirety before the repayment term is up.

Lending Club’s website says that it looks for four factors when considering loan eligibility for a small business: at least two years in business; at least $75,000 in annual sales (sorry, lemonade stands); no recent bankruptcies or tax liens; and the status of the person applying for the loan, including whether they own at least 20% of the business and that they have at least fair credit.

Who can get a loan offer through Lending Club?

Lending Club provides access to small businesses custom loan offers through its credit model algorithms.

This offer is based on information that’s then confirmed through the company’s underwriting process… Which is to say there’ll be no element of human error or bias in reviewing the information provided. Two businesses with similar backgrounds will both be offered or denied a loan based on their credentials, and nothing more.

“Our algorithm takes all of the data provided and calculates the loan amounts, prices, and terms that we can offer to the customer. That happens in a matter of say 10 seconds, so the applicant can see instantly if they receive an offer,” says Li.

How to apply for a loan through Lending Club

You can apply for a business loan through Lending Club on their website, and it’ll take only a matter of minutes.

Here’s how it works:

The application begins by asking how much your business needs and what you need the money for—options include debt consolidation, inventory or equipment purchase, working capital, remodeling, acquiring a new location, emergency repairs, marketing, and more.

Then the application asks for information in the following three areas:

1. About Your Business

You’ll be asked your business’s name, address, phone number and legal structure. Also, you’ll have to provide the number of years you’ve owned the business and how many employees it has.

2. About You

Your personal information like your name, number, address, and date of birth.

3. Financial Information

This asks for hard numbers on your business—gross sales last year, net profit, personal income, percent ownership of the business, and monthly payments that need to be made, like commercial real estate loans, rent, equipment and vehicle leases, and businesses lines.

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If you apply but your Lending Club loan is denied and you don’t qualify—for example, if you only own 10% of the business in question—they’ll let you know right away, providing an Adverse Action Notice with the reasons why so you won’t waste time on an application that’s not likely to work out.

You might also complete the 5 minute application  and find that your business isn’t approved for a loan based on your information. If that’s the case, Lending Club lets you know immediately and explains why you were denied with an Adverse Action Notice. They provide the means to follow up and learn more with their contact information.

If you meet the requirements, you’ll receive a loan offer customized for your business in a matter of seconds.

The next steps are simple: Pick the terms that are right for your business and prepare to be contacted to discuss the next stage. Most small businesses choose a 1, 2, or 3 year term. The longer the term you choose, the lower your monthly payment will be, but more interest will accrue over time. Since you can pay off early any time, many businesses choose the longest term available to them to get the lowest payment and cost savings.

“Small business applicants get a dedicated Client Advisor to help them through the process and answer any questions. Over the years, our Client Advisors have become trusted contacts for our customers.” says Li.

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After you  select a loan offer, next is the underwriting process, during which the Client Advisors guide the business through providing a few documents, as well as receiving and translating a final, approved loan offer.

For more on those stages, check out parts two and three of our series on working with Lending Club. As first steps go, however, Lending Club is notable for being both low cost and easy to work with. It’s this low-hassle and highly transparent process that has helped make Lending Club’s model and marketplace lending overall a mainstream component of debt financing.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Eric Goldschein

Eric Goldschein

Eric Goldschein is a staff writer at Fundera. He covers entrepreneurship, small business trends, finance, and marketing. He was previously the managing editor of SportsGrid.com, and has written for Business Insider, the Huffington Post and more.
Eric Goldschein

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