Lending Club, an online lender of small-business loans, is now offering a new business line of credit, a choice for small-business customers who need more flexibility to buy inventory, manage cash flow or handle unexpected expenses.
Lending Club’s line of credit, which ranges from $5,000 to $300,000, works a bit differently than the company’s term loan. Instead of receiving a lump sum of cash upfront, with payments beginning immediately, small-business owners can borrow cash as needed, only paying interest on the amount that is drawn from the line of credit. Lending Club introduced the new product on Oct. 15.
“We had feedback from customers that what they wanted was a more flexible product,” Tom Green, vice president of small business at Lending Club, tells NerdWallet. “If they are borrowing $100,000, they don’t necessary want all of it upfront. What they want is a bit more flexibility to be able to draw down on that as they need the funds.”
To qualify, borrowers need to meet the same eligibility criteria required for a Lending Club’s term loan: a minimum of two years in business and $75,000 annual revenue; ownership of at least 20% of the business; fair or better personal credit; and collateral for a line of credit over $100,000.
There’s no cost to open the line of credit, no monthly maintenance fees and no inactivity fees, Green says.
Once you’re approved for a line of credit, it comes with two charges: a 1% to 2% draw fee, and an annual interest rate from 6% to 21.6% on the money borrowed. The annual percentage rate (APR) — the annual cost of borrowing with all fees and interest included — is roughly the same as the company’s term loan (8% to 32%), Green says.
“We really encourage small-business owners to take a look around and compare their options, and when they are looking at sources of business credit, that they truly understand the cost they will pay,” Green says.
Compared to other lenders, Lending Club’s line of credit compares favorably on cost: OnDeck’s line of credit carries an APR of 13% to 36% (includes a $20 monthly maintenance fee), while Kabbage charges 20% to 113% and Dealstruck charges 11% to 22% APR plus the prime rate, 3.25%, on its inventory line of credit.
Borrowers are required to repay the Lending Club line of credit with automatic ACH bank withdrawals “to make it as convenient as possible and to make is easy to not miss a payment,” Green says.
Once you make a draw on the line of credit, you’ll pay interest on the outstanding balance, plus 4% of the principal every month; draws are repaid over a maximum of 25 months. This payment timeline is a major benefit over business credit cards, Green says, “where your debt can last 10 or 20 years if you only make minimum payments on your balance each month.” You can choose to pay the line of credit sooner to save on interest, with no prepayment penalties.
Small-businesses can apply online in less than five minutes and get a decision instantly. You’ll be required to submit documentation only if you’re approved: “That’s different from banks, which typically require a lot of work upfront without knowing if you’ll get financing,” Green says.
If you want a Lending Club business loan instead, apply on the lender’s secured site and read our Lending Club review:
Get StartedFind and compare small-business loans
If a Lending Club business loan or line of credit isn’t for you, check out NerdWallet’s list of small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Compare business loansSteve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
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from NerdWallet Credit Card Blog
http://www.nerdwallet.com/blog/small-business/small-business-lending-club-line-of-credit/
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