It certainly doesn't look like the best time to enter the online lending market for small business financing, given all the trouble the industry has had in recent months.
But with the space in need of the credibility a large, regulated bank can bring, the conditions for Wells Fargo's new small business loans may actually be perfect. The nation's third-largest bank and largest Small Business Administration lender by dollar volume announced Tuesday it will launch what it calls FastFlex loans for its small business customers, via a quick online application process.
The announcement comes the day after Lending Club's founder and chief executive Renaud LaPlanche was forced to step down by his own board, following alleged improprieties around some of his company's marketplace loans to businesses and individuals. Lending Club's stock price and that of its competitor OnDeck have been hammered in recent months as well, as investors have begun to question the long-term viability of such companies. Simultaneously, the alternative lending industry is battling a perception problem, with regulators announcing their intentions to examine lending practices that frequently are seen as opaque to borrowers.
Like its competitors in the online lending space, Wells Fargo' loans will be for relatively small amounts, from $10,000 up to $35,000. Small business owners will be able to access the funds within 24 hours after completing an application that takes only about 15 minutes, says Lisa Stevens, head of small business for Wells Fargo. The loans will have a one-time origination fee of $195.
To apply, business owners must be one of Wells Fargo's more than 3 million small business customers, have been in business for at least a year, and have sufficient revenue to support the loans' weekly repayment schedule.
The rates for FastFlex loans are much lower than rates of many online competitors, which can often amount to 50 percent or more. By contrast, Wells Fargo will offer annual percentage rates between 13.99 percent and 22.99 percent. The loans can be taken out for up to a year, Stevens said, and customers will not be penalized for repaying them ahead of schedule.
Wells built the new product and its credit underwriting model in nine months, Stevens said, largely in response to its customers needs. Compared with standard commercial loan products, the underwriting examines cash flow closely as a basis for approvals and decisions on loan rates.
"This product is meant for the small business owner with immediate cash flow needs," Stevens said.
Other banks have been getting into the space recently as well. In March Boston-based Eastern Bank said it would make online loans available for amounts up to $100,000 in a streamlined digital process that takes minutes, also allowing some applicants to get money the same day.
In December, JPMorgan Chase said it will use alternative lender OnDeck's credit-scoring technology, in an attempt to more quickly underwrite credit to some of the giant bank's 4 million small business customers.
In addition to banks and the alternative lenders, plenty of non-bank consumer finance companies also have begun to offer products. Square announced in April that it would offer its small business customers working capital loans, while small business e-commerce software company Shopify similarly announced last month that it has gotten into the market with merchant cash advances.