There's good money in lending to small businesses. Everyone but the banks seems to be figuring this out.
The latest entrant in the increasingly crowded space for small-business financing is San Francisco-based Lending Club, which is already one of the biggest players in peer-to-peer lending. Since its founding in 2007, Lending Club has facilitated a total of about $3.9 billion in loans. Those loans have all been made to individuals, not to businesses. (Some of the borrowers used the money for "business purposes," but they were still getting personal loans, not business ones.) On March 27, Lending Club will begin lending to businesses.
To make business loans, Lending Club is soliciting funds not from individual lenders on its site but from institutions such as hedge funds and family offices. The loans will range from $15,000 to $100,000 in size, although Lending Club hopes to eventually offer loans of up to $300,000. The loans will have terms of one to five years, and interest rates will range from 5.9 to 29.9 percent.
Lending Club CEO Renaud Laplanche has said previously that his company plans to diversify, eventually offering student and mortgage loans.
Ever since the financial crisis, a new group of lenders has been working furiously to figure out a profitable way to provide financing--specifically, working capital--to entrepreneurs. Many, such as Kabbage and OnDeck, have turned to technology, analyzing not just a borrower's credit score but tapping into payments systems and social media accounts to get a more detailed picture of a borrower's financial life.
Despite the many moving parts, the industry has become a favorite of venture capitalists, with Accel Partners and Meritech Capital Partners backing CAN Capital, a pioneer in merchant cash advances. OnDeck (First Round Capital, RRE Ventures) and Kabbage (Mohr Davidow Ventures, Blue Run Ventures) offer short-term, but relatively expensive, loans; Funding Circle and Dealstruck arrange peer-to-peer loans for business owners. Inevitably, someone started a marketplace for alternative lending to help entrepreneurs keep track of all this and find the best deal: Fundera launched earlier this year.