Lending Alternatives For Startups And Small Businesses
October 20, 2015 | By Kevin Vela
A core issue that any startup or small business faces is raising capital. You really only have two options – debt or equity. In many instances debt is preferable, because you’re not giving up any ownership in your company. But securing a loan from a traditional bank can be nearly impossible for a startup or small business with limited operating history. Or, perhaps you only need a small amount, say $25k – $100k, and a lot of traditional banks aren’t interested at those levels, or will eat up months of your time.
You do, however, have great alternatives.
Friends and Family Plus: Able
Able offers two innovative products to help many early to middle stage businesses get access to low cost loans up to $500,000 – Able Growth and Able Start.
Able Growth helps entrepreneurs grow their small business through collaborative low-interest loans funded by the support of their network with additional backing from Able. In an Able Growth Loan, borrowers recruit three to five backers to pledge at least 25% of the total loan amount then Able collects the funds, organizes the loan, and provides the remaining 75%. Borrowers may choose to raise more than 25% of the loan from backers, which lowers the overall interest rate. Backers are paid interest monthly and receive the principal back in full during the final fourth of the loan term.
Able Start, Able’s newest product, is a more flexible friends and family funding option. The borrower finds friends and family lenders and sets the terms of the loan while Able manages the rest. Able provides the necessary legal documents, collects and disburses payments, and gives the borrower access to business support through the Able network.
To apply for an Able loan, borrowers create a short profile then Able will review the business’s financial information and run a credit check. Within three business days, Able will make a decision on the loan.
- Loan Amounts: $25,000-$50,000
- Loan Terms: 1-5 years
- Interest Rates: 8%-16%
- Fees: Origination Fee
- Prepayment Penalties: None
For more information on Able collaborative loans visit Ablelending.com.
Launch with Assistance: LiftFund
LiftFund is a nonprofit organization that partners with SBA lenders to provide credit and services to small businesses and entrepreneurs who do not have access to loans from commercial sources and to provide leadership and innovation to the microlending industry.
Loans through LiftFund are issued for all types of business needs: startups, supply and inventory, purchasing a business, equipment, real estate, lease improvements, vehicles, restaurants, or operation and working capital. LiftFund also provides a range of services to help small businesses get off the ground including financial, management, planning, and budgeting support; legal structure advice; and business and strategic planning advice.
The application process for a LiftFund is similar to traditional loan application methods.
- Loan Amounts: $500-$250,000
- Loan Terms: 6 month minimum
- Interest Rates: Dependent on business needs
- Requirements: Applicant must live in a state LiftFund serves for at least six months and must operate in the service area. LiftFund service area includes Texas and 12 nearby states.
Take it to the Crowd: Lendoor
Lendoor is a crowdfunding platform where Texas based borrowers can receive loans completely funded by peer lenders.
On Lendoor, the borrower sets the important terms of the loan: amount, term to maturity, and interest rate. All other terms are set by Lendoor. The better the terms offered to lenders, the bigger the number of people who’ll want to lend. Since Lendoor is based on crowdfunding, the loan will not be originated unless the loan funding goal is met. Lenders are then paid interest monthly from the cash flow generated by the business.
To apply for a Lendoor loan, borrowers create a profile page and are encouraged to reach out to their business network through social media or traditional channels to gain interest. On their profile, borrowers choose which aspects of the business they would like to disclose on their profile to generate interest. Lenders can then review the business and pledge funds through the Lendoor website.
Currently, Liftfund is offering a match-lend of $5,000 for projects that raise $10,000 on Lendoor.
- Loan Amounts: $10,000-$250,000
- Loan Terms: Borrower sets term
- Interest Rates: Borrower sets rate
- Fees: Origination Fee and Loan Service Fee
- Prepayment Penalties: None
For more information on Lendoor crowdfunded loans visit Lendoor.com.
Posted in Crowdfunding, Funding & Capital Raising, Startups
Kevin Vela is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, mergers & acquisitions, corporate law, capital raises, and real estate investment activities. You can see Kevin’s attorney profile HERE.