Thinking outside the lending box
If you are a business owner, you know how tedious it can be finding feasible banking options. Depending on your financial history, financial need, and current financial state, it can take months before not only finding the right bank or lending option, but to be accepted as a client. We know the pain, and decided to find the best alternative lending option for small business lines of credit.
Why alternative lending instead of big bank?
Alternative lending companies aren’t typically as strict as big name banks, and therefore have higher acceptance rates. The leniency from alternative lending companies is great for small businesses with financial dings or questionable credit history. Alternative lending also offers benefits such as quicker approval times, more flexibility, and less paperwork.
Alternative lending options
There are a dozen alternative lending options that have gained popularity over the years, such as Lending Club and OnDeck. While you should definitely take a look before deciding, after extensive research and our own personal experiences with debt, we suggest Kabbage as an excellent option for small business in financial need.
Kabbage immediately separates itself from other options with its application and approval process that takes the headache out of “sign up”.
Instead of a lengthy underwriting process that has to be done in person, Kabbage’s application is done completely online, and has an almost instant approval process if requirements are met.
Small businesses must have been in business for at least a year, and earn at least $4,200 in mostly revenue. Monthly revenue, transaction volume, and credit score are also deciding factors.
Finding the proper paperwork takes a large chunk of time in itself, which is why Kabbage offers its users the option to save time by linking the application to a business checking account or online banking service such as PayPal instead.
Once linked, Kabbage will review the data to determine loan eligibility. Compatible banks and online services include: Chase, Bank of America, Wells Fargo, PNC, U.S. Bank, Regions, BB&T, TD Bank, USAA, Citibank, Capital One, SunTrust, Navy Federal, BBVA Compass, Fifth Third Bank, PayPal, Authorize.Net, Stripe, Sage, Square, eBay, Shopify, Yahoo, Amazon, Etsy, and Intuit.
FYI: Kabbage also looks at personal credit score, which should be at least above 550.
Kabbage offers lines of credit between $2,000 and $100,000, and functions more as a credit card than a traditional loan. For example, if you are approved for a $100,000 line of credit but only use $20,000, you only pay fees on the $20,000. Users can also draw money against their line of credit as often as once a day.
The fees mentioned above range anywhere from 1.5 to 12 percent of the loan amount for the first two months on a six month loan, or six months on a 12 month loan. There is a standard one percent fee for remaining months. Outside of these monthly fees, there are no added costs for a line of credit, which is another reason we suggest Kabbage. Most of the other lenders we researched had additional fees.
It is also important for small businesses to note Kabbage does not enforce any limitations on how the loan is used. Inventory, design, marketing, or whatever you decide to spend it on, is your prerogative. This is in contrast to other lending companies, who want to know explicit plans about how the money is to be spent before approval.
Although we like Kabbage overall, it is our responsibility to tell you about the things we don’t like. The biggest complaint we have is the limited amount of time small businesses have to repay their loan.
While there is a 12 month option, which is still not a lot of time, the only other option is six months.
So for small businesses with financial needs that span longer than a 12 month repayment term, Kabbage may not be the right solution.
Don’t take our word for it…
As stated in the beginning, there are a dozen other options for alternative lending, along with traditional lending options. And although we appreciate you taking our word for it, applying for the wrong loan can make a bad financial situation worse. So please be sure to research your different choices, keeping your specific needs and goals in mind.
If the decision is too tough on your own, consult with an accountant or financial expert to find the best option for you and your small business.