The Alternative Lending 25: Small Business Edition
At its core, alternative lending just means the lending industry outside of traditional banks. But in recent years—especially since the 2008 financial crisis—alternative lending has grown and grown. Invested in technology, data analysis, and special algorithms, startups began to capture the small business market previously ignored or denied by banks. And since the financial crisis, when credit tightened more than ever, these small business owners have been heading to the newest online lenders instead of their local banks.
Fast, efficient, convenient, and flush with so many different options, the online alternative lending industry flourished as small business borrowers recognized its flexibility. Access to credit isn’t just for old and established businesses these days—entrepreneurs can take out a loan earlier and earlier, though they may pay extra for the cost of that confidence.
We’ve got a list of some of the top lenders, partners, and thought leaders in the alternative lending industry. These 25 companies, teams, and people have each helped shepherd in irreversible changes in borrowing—and they’re proof that today’s alternative lending is here to stay.
With Able, small business owners recruit their friends, family, and community members to contribute a quarter of their loan requests. Able then matches the other 75% with a low-interest-rate monthly term loan—altogether manageable terms, especially for alternative lending.
What makes Able so unique, of course, is their reliance on that original 25%. It’s not an unfair assumption to make that if a borrower can convince 3 to 5 people to invest money into their business venture, then they’ve probably got a good chance of success—even if they lack the financial documents or credit history to prove it. They might not have access to your credit score, but your friends and family probably have a solid intuitive sense of what sort of borrower you are—otherwise, they wouldn’t put their own cash on the line. Able certainly takes an especially innovative look at the small business lending industry, and that hasn’t been ignored.
BlueVine offers invoice financing—the ability to free up cash flow by funding accounts receivable. They open bank accounts and PO boxes in every small business owner’s name, so that their customers don’t need to deal with confusing changes, and typically fund invoices in 24 hours or less. It’s a straightforward financing tool, but all the more powerful for its simplicity.
BlueVine also boasts a special product for truckers and transportation professionals, with a special deal for unpaid freight bills and a lowest rate guarantee.
3. Bond Street
Bond Street centers more on business financing specifically, and they focus on businesses looking for medium-term loans. Businesses will need to have been in business for more than 2 years, have over $200,000 in annual revenue, and able to put up collateral.
Like many of the alternative lending power players, Bond Street has invested heavily in the technology behind their underwriting processes. By creating a reliable and well-oiled automation system, Bond Street can fund businesses in high quantities, at high speeds, without loss of accuracy or human capital investment. Borrowers can link their QuickBooks, LinkedIn, and bank accounts to provide information that just their names and tax IDs or social security numbers (for credit scores) wouldn’t give up, like their business’s networks, revenue streams, and cash flow.
4. CAN Capital
Meanwhile, alternative lenders have made inroads into the short-term loan category as well. The name of the game here is speed: speed of applying, speed of underwriting, and speed of funding. And CAN Capital has speed down to a science.
With its complex underwriting algorithms, CAN Capital doesn’t just analyze annual revenue and credit scores—it takes into account frequency of sales, inventory access, eBay seller ratings, and more. Borrowers only need to contribute a small portion of what CAN Capital actually examines, making the application process painless while the turnaround time—largely automated—means they can get funding soon after submitting. In a larger break from bank lending, alternative lenders like CAN Capital have given small business owners increased access to capital when they actually need it.
5. The Credit Junction
The Credit Junction offers two products: a term loan and a “revolver” loan, or a line of credit. It deals in relatively larger loan amounts for the alternative lending space—sometimes offering up to $2 million—and makes use of an asset-based risk assessment model, as it positions itself as a supply chain financing company. Like all its alternative lending cousins, The Credit Junction also pushes its technological side: they’re “technology-enabled,” which means quick and headache-free, at least when compared to their alternatives—traditional banks. Read The Credit Junction reviews to learn more.
In terms of innovation, Dealstruck aimed for breadth and flexibility. They recognized that small business owners didn’t have enough access to capital—and also that the kinds of credit given to small business owners were limited, too.
Instead of sticking to the basic term loan structure and calling it a day, Dealstruck offers a suite of credit products: a term loan for refinancing debt and working capital, of course, but also an inventory-backed line of credit and an invoice-backed line of credit. Though it started recently, in 2013, Dealstruck’s fast process, low costs, and flexible product offerings have made it prominent in the alternative lending community.
A division of CIT Bank, N.A., DirectCapital has the forces of age and experience behind it: more than 20 years, in fact. They deal in short-term loans, equipment financing, and somewhat uniquely, franchise funding. This last option doesn’t limit its loan usage to acquisition, however: if you own a franchise and take out a DirectCapital franchise loan, you can use it to remodel or upgrade equipment, as well as to purchase another location.
Following the trend in alternative lending, DirectCapital emphasizes the speed of processing and ease of use its application involves.
Fundation offers fast funding for owners looking to grow, expand, or refinance their businesses. Though their options aren’t quite as cheap as those a bank might offer, Fundation still has an impressive set of financing available to borrowers. With biweekly repayment plans and a true conventional term loan—as opposed to a fixed repayment contract, where interest payments are based on the original principal instead of the balance remaining—Fundation has some compelling products for small business owners looking for bank alternatives.
Plus, they hone in on the human angle of loans and funding. Fundation sets up its borrowers with customer relationship managers who can answer questions and address concerns—which are always bound to come up when dealing with business financing.
The idea for Fundbox came from one of the cofounder’s mother’s repeating troubles at her employment agency: she would struggle with cash flow gaps when dealing with a late payment. If a small business depends on customers’ prompt payment so they can take care of payroll or bills, a late payment can certainly paralyze them.
Presenting itself as a solution to this all-too-common problem, Fundbox’s invoice financing product syncs directly with a business owner’s accounting software, allowing them to finance any eligible invoices in their account. Businesses can finance up to $35,000, and must pay back the amount within 12-weeks. What makes Fundbox different from other invoice financing companies is that their fees aren’t dependent on when your customer pays their invoice—you simply pay a set weekly fee. And if you choose to pay back the sum before the 12-week period ends, you’ll only have to pay the advance amount. All remaining fees will be waived. Check out Fundbox reviews to learn more
10. Funding Circle
Funding Circle capitalizes on the peer-to-peer lending concept, but with business loans instead of personal loans. It launched in the UK in 2010—and funded over £1 million in its first three months. It spread to the US in 2013, and has contributed to the shift in small business lending that we’ve watched grow in recent years.
With Funding Circle, individuals can browse pre-approved small- and medium-sized businesses on Funding Circle’s platform and choose where and how to invest. Funding Circle has switched from an auction-like system for loan rates to an internal risk assessment, and offers a secondary platform for trading loans as well. Investors can create bidding robots to automatically distribute their funds, and can spread their risk by investing in small amounts across many businesses—while business owners have increased access to financing they otherwise would’ve been denied at a bank. When it comes to alternative lending, Funding Circle makes a great case for why it’s important, and how it can succeed.
Established in 2009, Kabbage has been a part of the alternative lending game for quite some time—and they’ve definitely secured a strong position for themselves. Expanding into the UK, getting named one of the top 10 most innovative companies in finance by Fast Company, and recently getting valued at over $1 billion are just a few of its claims to fame.
Kabbage focuses on one product for small business owners: a line of credit. Using data points like transaction volume, shipping history, and social media activity, in addition to the normal metrics, Kabbage evaluates small businesses and provides lines of credit with caps of up to $100,000. It’s a quick and easy product to apply for, though it functions slightly differently from the lines of credit more traditionally offered by banks and other institutions.
12. Lending Club
Speaking of success in the alternative lending industry, we definitely can’t forget Lending Club. The biggest peer-to-peer lending platform in the world and the largest IPO of its year (2014) in the US, Lending Club has proven beyond a doubt that alternative lending is here to stay. Once upon a time, though, it started as one of Facebook’s very first applications.
Though it’s not the only company to boast this feature now, Lending Club paved the way for a secondary loan trading market, and it worked alongside several banks to help them fund otherwise overly risky loans. Beyond serving small businesses, Lending Club deals with loans for cars, homes, vacations, medical expenses, and more.
OnDeck largely deals with fast and easy funding—the kind that a bank wouldn’t be able to make. Borrowers with lower credit scores or newer businesses can now take out business loans to grow and expand their projects, while there were far fewer and more limiting options before the alternative lending growth spurt of recent years.
OnDeck has served over $3 billion to businesses in more than 700 industries, and lends to small business owners in Canada as well as in the United States. Though like all short-term lenders, OnDeck can be on the expensive side, they give business owners the option to borrow at a far earlier stage.
America’s first peer-to-peer lending marketplace, Prosper lets enterprising individuals actually invest in personal loans. By providing the standard underwriting fare—like credit scores and histories—alongside more personal data—like endorsements from friends and community members—Prosper gives potential investors unique insight into their options. They let borrowers request between $2,000 and $35,000, while investors can contribute even with $25.
Prosper’s business model was so innovative that the SEC filed a cease and desist order against it in 2008, finding it in violation of the Securities Act of 1933. Since then, the SEC has decided to treat peer-to-peer lending as securities sales… Sounds like the definition of disruptive.
By introducing the concept of crowdfunding to personal loans, Prosper contributed to some major shifts in alternative lending—and those personal loans, by the way, are a great way to start up or fund a small business when you otherwise might not qualify for funding.
QuarterSpot offers short-term loans to small business owners—but unlike those of other alternative lenders, QuarterSpot’s truly amortize.What does that mean exactly? Well, most short-term lenders pack their loans together with set payment plans, preventing business owners from actually saving money if they pay off their loans early on. QuarterSpot, on the other hand, structures its short-term loan the same way a medium-term lender might: you’ll have transparency into whether you’re paying interest and principal, so you can plan when it makes sense to pay early (or not). Check out QuarterSpot reviews to learn more about the lender.
On the other side of the lending landscape, SmartBiz deals with SBA loans—or financing partially backed by the government’s Small Business Administration. These loans can reach up to $350,000 with terms of 10 years and interest rates between 6.25% and 7.25%.
SmartBiz takes a traditionally time- and effort-intensive lending application process—the SBA was notoriously slow, at least back in the day—and brings it into the high-tech era. It also hones in on customers that are actually overqualified for many alternative lenders, giving them the same speedy service for a fraction of the cost. Check our SmartBiz reviews to learn more about the lender.
Like many alternative lenders on our list, Streetshares lets investors pick and choose which small businesses—and which loans—they want to help fund. They auction off your financing request, collecting the lowest rate bids together to form a medium-term loan product, and then offer you the result.
Unlike most of the Alternative Lending 25, Streetshares is particularly focused on small business loans for veterans, being one itself. Though it helps connect investors and small business owners regardless of demographics, Streetshares has a special veterans section filled with unique content, resources, partnerships, and customers.
On the other end of the spectrum from global companies like J.P. Morgan, discussed below, we have community banks: small, local, and customer-oriented. Although these community banks excel in support and loyalty, they don’t have the same market access as the bigger alternatives.
Enter: BancAlliance. Founded in 2011, BancAlliance unites over 200 community banks with its lending programs and financial services, offering competitive scaling and diversification through cooperation. And now, by coordinating with Lending Club, BancAlliance community bank members can use the alternative lender’s personal loan underwriting system to speed up their decision-making processes. Lending Club, meanwhile, gets exposure to borrowers who already know and trust their community banks—and who will probably trust their bank’s partners, too.
A financial and tax preparation software company, Intuit is most famous for TurboTax, Quicken, QuickBooks for small businesses, and most recently, the financial management application Mint.
But Intuit has also made some forays into alternative lending—they partnered with OnDeck to launch a small business line of credit directly connected to the QuickBooks product. Powered by Intuit’s customer data and financial analysis, alongside OnDeck’s technology-heavy underwriting processes, this $100 million fund offers reasonable rates, speedy timelines, and easy applications based in the QuickBooks program. By merging financial services together, Intuit and OnDeck have opened up the alternative lending ballgame to a whole new slew of possibilities.
20. J.P. Morgan Chase & Company
Intuit and OnDeck merged different kinds of financial services to create a new kind of lending platform. J.P. Morgan Chase & Co. partnered up with OnDeck, on the other hand, to extend both of their lending capabilities in either direction.
You’ve probably heard of J.P. Morgan Chase & Company: it’s the largest bank in the United States and the sixth largest in the world, by some counts, encompassing investment banking, asset management, private banking, wealth management, and so on. But like all banks, J.P. Morgan has historically underserved its small business owning-customers—generally higher risk for lower return, small business owners in the post-financial crisis era have had a tough time securing capital from banks.
Of course, that’s the story behind alternative lending in the first place… Which is why it’s interesting and exciting to see a global bank like J.P. Morgan partnering up with an alternative lender like OnDeck. J.P. Morgan gets to increase its market share in small business lending, taking advantage of OnDeck’s four million customers and speedy underwriting technology. Meanwhile, OnDeck doesn’t have to put up the capital to back those loans—they just get origination and service fees from J.P. Morgan. It’s not a completely even partnership, since OnDeck isn’t mentioned in J.P. Morgan’s lending flow—even if they’re underwriting—and OnDeck doesn’t get any opportunities to snap up business owners that J.P. Morgan ultimately rejects. It’s a step in a new direction, though only time will tell if it’s the right one.
21. Regions Bank
J.P. Morgan Chase & Company isn’t the only bank looking to shack up with alternative lenders, though. Regions Bank, a subsidiary of the Regions Financial Corporation based in Alabama, has teamed up with Fundation—only this time, they’re creating a completely co-branded experience, where small business customers of Regions looking to take out a small business loan can see and access Fundation’s platform.
This partnership lets both Regions Bank and Fundation expand their credit offerings, widen their customer bases, and build more efficient lending platforms—without substantially increasing the risks they take. It’s a “highly integrated and coordinated approach,” according to Sam Graziano, CEO of Fundation. It’s also a unique one for traditional banking and alternative lending.
The Thought Leaders
22. Jared Hecht, Fundera
Co-founder and CEO of Fundera—an online platform that helps small business owners get the best loans by shopping around and comparing options—Jared Hecht likewise has dedicated himself to increasing transparency in the small business lending sphere. The structure of Fundera lends itself to disrupting the business loan brokering system. Whereas most commercial loan brokers or marketplaces for business loans act unscrupulously, often against their customers’ best interests in order to make more money, Fundera encourages its small business owners to learn as much as possible and make informed choices regarding their financing. By emphasizing comparison across all of the industry’s top alternative lenders, Fundera lets small business owners see for themselves which deals work best for them.
Alongside leading Fundera to focus on initiatives like a Small Business Borrower’s Bill of Rights and the quarterly State of Online Small Business Lending reports, Jared Hecht contributes often to Inc., Entrepreneur, The Huffington Post, and others, discussing alternative lending and small business owners’ access to borrowing credit.
23. John Arensmeyer, Small Business Majority
Based in San Francisco, Small Business Majority is a small business advocacy group that polls the public, writes studies, and educates small business owners and policymakers alike. It gained prominence during the healthcare debates surrounding the Patient Protection and Affordable Care Act in 2010, and continued to influence Washington D.C. to advocate for issues like clean energy, immigration reform, and more. Arensmeyer, through the Small Business Majority, has endorsed the Small Business Borrower Bill of Rights and written extensively on the benefits—and dangers—of the alternative lending industry.
John Arensmeyer founded Small Business Majority in 2005, but before SBM entered the playing field, he founded and served as CEO of the award-winning international e-commerce company ACI Interactive. He was also COO of a multimedia business and, even earlier, a New York attorney. When he started Small Business Majority, Arensmeyer focused on creating an organization that would address the actual thoughts, feelings, wants, and needs of small business owners—instead of just representing a blanket ideology that might have more obvious policy implications but wouldn’t be as true to America’s hardworking entrepreneurs.
24. Karen Mills
The 23rd administrator of the SBA, Karen Mills was nominated by President Obama and confirmed unanimously by the Senate in 2009. During her time at the SBA, Mills’ position was raised to the Cabinet level, granting her access to Cabinet meetings—and giving her the opportunity to champion small business owners on a bigger stage. Since stepping down in 2013, she’s taught at the Harvard Business School as well as Harvard’s school of government and public policy, run an investment firm, and much more.
In 2014, Mills released “The State of Small Business Lending,” a paper analyzing the influence of the financial crisis on small business lending—and how technology-centric alternative lenders have been disrupting the industry. When it comes to small business borrowing and alternative lending, few people know as much—or have influenced as much—as Karen Mills.
25. Peter Renton
Founder of the educational website Lend Academy way back in the infancy of peer-to-peer lending—a form of alternative lending that Lending Club and Prosper, among others, participate in—Peter Renton has gone on to start and run the wildly successful LendIt Conference, as well as Lend Academy Investments. He’s published free alternative lending ebooks (including the definitive guide to Lending Club), interviewed industry leaders on his podcast, and maintained an active and robust blog presence that’s only grown over the years. You simply can’t bring up alternative lending without mentioning Peter Renton’s massive, and continuous, contribution to the industry.
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