Does your small business need financing in a hurry? Instead of a traditional bank loan — which takes time, great credit and, often, collateral — you could try a short-term small-business loan or a business line of credit from Kabbage or OnDeck. These alternative lenders promise quick funding, minimal paperwork, easy application and higher approval rates than with traditional financing.
But first, let us help you gauge what each lender has to offer, how fast you’ll get the money, what it’ll cost you and what it takes to qualify.
KABBAGE IS A GOOD FIT IF:
- Your company earns at least $60,000 in annual revenue.
- You have bad personal credit.
- You need working capital.
Details on speed, costs and how to qualify.
ONDECK IS BETTER IF:
- Your company earns at least $100,000 in annual revenue, for term loans, or $200,000, for lines of credit.
- You have a credit score of at least 500.
- You need money for an expansion or working capital.
Details on speed, costs and how to qualify.
Should you choose Kabbage or OnDeck?
The answer really depends on your needs.
With borrowing amounts up to $500,000 and repayment terms stretching to 36 months, OnDeck’s term loans are a better option for a business expansion, such as buying inventory, renovating real estate or hiring new employees.
Kabbage and OnDeck both provide lines of credit up to $100,000, which are best for working capital and managing cash flow. The key difference is how you repay it. Kabbage requires you to pay back the money you borrowed in monthly payments over six or 12 months. OnDeck requires weekly repayments over six months. The decision here depends on your cash flow, your personal preference and, of course, whether you qualify for financing.
Businesses with consistent sales or those that prefer smaller, more frequent repayments should go with OnDeck. Businesses that are seasonal, with more lumpy sales, or that prefer larger but less frequent repayments should go with Kabbage.
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Kabbage: How fast, how much it costs
Kabbage offers a line of credit repaid over six or 12 months. Credit line amounts range from $2,000 to $100,000. (Read our review.)
Speed: The fast, simple online application process can take less than 10 minutes, with no documents needed and a loan decision made on the spot. Once approved, you can get access to the funds immediately or within just a few days, depending on how quickly Kabbage can verify your business data and bank account and on your method of receiving the cash. A direct transfer to your bank via your debit card or an instant transfer to your PayPal account is faster than an automatic deposit to your bank.
Minimum qualifications: You’ll need to have been in business at least one year, have annual revenue of at least $60,000 and have a business checking account or a PayPal account. Kabbage also requires you to link to at least one of your business’s online services, such as your business bank account, a payment provider such as PayPal or Square, or an online store such as eBay or Amazon.
The typical Kabbage borrower: Kabbage borrowers typically have been in business two to five years and have annual revenue of $100,000 to $10 million a year.
The company looks at many factors to determine whether to approve the loan and what the loan amount will be, including average monthly revenue, length of time in business, transaction volume, your personal and business credit scores (although no minimum is required) and even social media activity. Kabbage doesn’t require borrowers to sign a personal guarantee, meaning you won’t be personally liable for the debt if your business can’t repay it.
Find out more about the application process in our step-by-step guide.
The costs: You must repay money you borrow from a Kabbage line of credit monthly over six or 12 months. Each month, you pay back a percentage of the amount borrowed (the principal) plus a fee, which ranges from 1% to 12% of the total loan.
With the six-month plan, the fee is higher in the first two months (up to 12%), before dropping to 1% in the remaining four months. With the 12-month plan, the fee is higher in the first six months, before dropping to 1% for the remaining six months.
The annual percentage rate for a Kabbage line of credit ranges from 32% to 108%. APR measures the true annual borrowing cost of loans, with all fees and interest included.
There are no early-payment fees, and if you do pay off early, you’ll save on fees. Since you pay most of the fees in the first two months in the repayment schedule for the six-month option, the savings would be minimal. Repaying the loan early makes more sense for the 12-month option, but only if you repay it within the first six months.
Best uses: With a line of credit, you borrow money only when you need it and pay interest only on what’s borrowed. This makes Kabbage a better option for covering day-to-day expenses, such as payroll and inventory.
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OnDeck: How fast, how much it costs
OnDeck offers term loans, which provide a lump sum of cash at closing that is repaid daily or weekly, and a line of credit. Term loans range from $5,000 to $500,000, with repayment terms of three to 36 months, while credit line amounts go up to $100,000, repaid over six months. (Read our review.)
Speed: The application process is simple and takes about 10 minutes, with a loan decision in minutes and access to funds in as little as 24 hours. You can apply online on the company’s website or by phone. Find out more about the application process in our step-by-step guide.
Minimum qualifications: To qualify for an OnDeck term loan, you’ll need to have been in business at least one year, earn a minimum of $100,000 in annual revenue and have a personal credit score of 500 or better, with no personal bankruptcies in the past two years. A personal guarantee also is required, and the company may file a lien on the assets of the business so it can take ownership of those assets to repay the loan if you default.
For the line of credit, you need to have a majority owner with a minimum personal credit score of 600 and minimum annual revenue of $200,000. OnDeck’s line of credit also requires the borrower to sign a personal guarantee. Unlike OnDeck’s term loans, its lines of credit do not require a lien on your business’s assets.
Finally, your business cannot be on the restricted industries list, which includes banks, real estate brokers, property managers, tax preparation services, auto sales and attorneys.
The typical OnDeck borrower: OnDeck borrowers typically have a personal credit score over 600, a median seven years in business and $600,000 in annual revenue.
The costs: The APR of OnDeck’s term loans is 9% to 98%, which includes an origination fee of 2.5% of the total loan amount. The fee drops to 1.25% for your second loan and 0% for all loans thereafter.
You repay OnDeck term loans either daily or weekly, and payments are deducted automatically from your business bank account. The company doesn’t charge prepayment penalties and now offers prepayment options that include potential interest reductions if you pay early.
The APR of OnDeck’s lines of credit is 14% to 36% APR. Each individual draw on the credit line is repaid weekly over six months.
Best uses: OnDeck’s term loans are generally better suited for business owners who need a significant amount of money to buy equipment, open a new location, hire employees or make a large inventory purchase. Its lines of credit are a good option for businesses that need working capital or to handle unexpected costs.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information about funding options and compare them for your small business, visit NerdWallet’s best business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
This post has been updated. It was originally published May 26, 2015.
Image via iStock.
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