Capital Opportunities for Small Businesses - sbtdc

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C A P I T A L O P P O R T U N I T I E S F O R SMA L L B U S I N E S S E S connect businesses with brokers and not lenders. For start-up businesses, franchises are the most likely to find some success via loan matching sites. Peer-to-Peer Lending (P2P) Peer-to-peer lending, in which groups of individuals make loans to entrepreneurs through matchmaking web sites such as Lending Club and Prosper, has gained significant popularity in the last few years. Most peer-to-peer loans are unsecured personal loans, largely based on personal credit scores, with a maximum loan amount of $35,000. The lending intermediaries are for-profit businesses; they generate revenue by collecting a onetime fee on funded loans from borrowers and by assessing a loan servicing fee to investors (either a fixed amount annually or a percentage of the loan amount). Does it cost more to borrow from nontraditional lenders Often, yes. At Lending Club, for instance, interest rates range from 6 – 26%, based on an assessment of risk and volatility . Peer-to-peer lending may be useful when small amounts of funds are needed, and banks are not interested in investing at that level. Peer-to-Peer Lending Sites ACCION USA 115 East 23rd Street, 7th Floor New York, NY 10010 212.387.0377 info@accionusa.org www.accionusa.org/default.aspx Lending Club 71 Stevenson, Suite 300 San Fransisco, CA 94105 866.754.4094 www.lendingclub.com/home.action GlobeFunder Ventures, Inc. 271-A West Centre #211 Portage, MI 49024 888.870.1304 www.globefunder.com Prosper Marketplace, Inc. 111 Sutter Street, 22nd Floor San Francisco, CA 94104 866.615.6319 www.prosper.com 144
C A P I T A L O P P O R T U N I T I E S F O R SMA L L B U S I N E S S E S Short Term Business Loans Some newer web sites are offering short term business loans based on overall business health, and not just credit scores. One such site, On Deck (www.ondeckcapital.com), offers loans of $25,000 – 250,000 for periods of 3 – 18 months that are repaid through daily debits from the business bank account (equal daily payments over business days). Requirements include being in business for 1 year (so no start-ups), annual revenue of over $100,000, and a personal credit score of 500 or more. Their average loan is a 6 month term with 15% simple interest (APR higher). PayPal has begun offering short term loans to borrowers selling exclusively through the Internet and currently managing their revenues via a PayPal account. Kabbage.com provides advances to help underwrite inventory for eBay, Amazon Marketplace and other auction sellers. What most online options have in common is that they are considerably more expensive than bank loans, and sometimes have terms that are harder to understand. When considering these sources, make sure to check ratings, get references, and understand the terms and conditions. Also see Crowdfunding in the Equity Capital chapter on page 117. 145
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APPENDIX A: QUICK REFERENCE TO SBA
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PROGRAM AMOUNT % GUARANTEE (MAX) US
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Capital Opportunities for Small Businesses - sbtdc

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