Thanks to the rise of FinTech companies and online lenders, small business owners have enjoyed more options than ever when it comes to getting a loan. Now one such lender is offering entrepreneurs yet another option. This past week Lending Club expanded their small business lending offerings to include a business line of credit.
This new product will give entrepreneurs the ability to cover unexpected expenses and invest in improvements without taking out a lump sum loan up front. Lending Club’s vice president of small business recently told NerdWallet, “We had feedback from customers that what they wanted was a more flexible product… 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.”
Like their term loans, Lending Club allows entrepreneurs to borrow up to $300,000. The qualifications are similar as well, requiring applicants to be in business for at least two years, have $75,000 in annual revenue, own at least 20% of the business, and have at least fair personal credit. Different from the term loans, a 1 to 2% draw fee will be assessed when you use your line of credit. However, there is no cost to start the line of credit nor are there any monthly maintenance or inactivity fees.
Similar to a credit card once funds are drawn from a Lending Club small business line of credit, the borrower will pay 4% of the loan principal back per month plus interest. However, one big benefit of using a line of credit instead of a card is that your loan will be paid off in no more than 25 months, assuming you make the required monthly payments. Additionally Lending Club’s annual interest rate (starting at 6%) is lower than your average business credit card.
Lending Club’s small business line of credit is one more option for entrepreneurs who already have a lot to consider. While a line of credit may be comforting to a business owner looking for a safety cushion, those looking at making a single large purchase for their business may still prefer a term loan (from an online lender or otherwise). Still, it is encouraging to see Lending Club expanding their offerings for small business — making good on their promise to get into other areas of credit. It will be interesting to see how they and other FinTech companies continue to change the credit system overall in the coming years.