Lending Club Review: Is Lending Club a Good Lender for Businesses?
Lending Club is a lending marketplace, not a direct lender. It is known as a peer to peer (‘P2P’) lending marketplace. What this means is that it connects lenders with borrowers, as opposed to processing the loan itself using a bank or financial counterparty. However, it still bears resemblance to direct lending platforms. Applicants will have to meet certain criteria and provide documentation if they intend to get a loan.
The platform was first launched in 2007 as a venture-backed operation. It was actually launched as one of Facebooks’ first applications. However, it was not until 2014 that it began to offer loans to small businesses. The same year, it filed for an Initial Public Offering (‘IPO’), raising over $900 million as the largest tech IPO that year. It also acquired SpringStone Capital and formed a partnership with Union bank in 2014.
Technically, people invest in loans on the Lending Club platform, and the loan can be described as ‘crowdfunded’. What actually happens is that an investor scrolls through a list of borrowers and can see information about the borrower and the intended purposes of the loan. They then decide to invest or not, with a minimum of $25. These investors keep the interest on the loan, but cannot decide what the interest rate will be. Each borrower is assigned a grade (A – D) based on credit rating and other factors. This determines the interest rate per borrower.
Lending Club offers only the term loan up to $500,000 as opposed to the common line of credit or invoice financing. It is a huge P2P marketplace – over $28 Billion in loans have been facilitated through Lending Club.
$5,000 – $500,000
Up to 60 months
Up to 7 days
Lending Club Advantages
The eligibility requirements for Lending Club are very low. All that is required is $50,000 in annual revenue, 12 months in business, no recent bankruptcies, and to own at least 20% of the business. In addition, you only need to have a ‘Fair’ or better credit score. However, applicants will typically need a 600 credit score or higher to qualify for a loan.
Possibly the single biggest advantage with Lending Club is the lack of prepayment penalties. You can pay off the entire loan early, including the interest. Other lenders might allow you to pay off the loan early, but with no benefit due to a fixed rate. This allows for a huge level of flexibility.
Another benefit is the monthly repayment schedule with its fixed rate – this trumps the daily or weekly repayment schedule offered by many other online lenders. It is easier to make a monthly repayment than a weekly or daily one. This also makes it easier to avoid late payment penalties.
What makes Lending Club great for small business owners is that they can use a personal loan for their business venture. This is an honest hack for business owners that want a lower rate. These personal loans are available up to $40,000 and could be the perfect kind of finance for a new enterprise. The long repayment schedule gives business owners more time to pay off their loan obligations. While many lenders offer term lengths of 1 – 3 years, Lending Club extends all the way to 5 years.
Lending Club Disadvantages
One thing to be made aware of is that you cannot get an adjusted loan rate with Lending Club. The process is algorithmic so they are not able to adapt well to events. They are one of few lenders that do not seem to be making changes with regard to the global pandemic that is the Corona Virus.
Lending Club can be a little confusing in comparison to other online lenders, and lacks transparency. It no longer facilitates small business loans directly. Upon completion of the application, borrowers are referred to two partner sites – Opportunity Fund or Funding Circle. Stipulated at the bottom of the Lending Club application page is the following –
“All loans made by partner lenders Opportunity Fund CFL License # #6050609 and Funding Circle CFL License #6054785. Actual rate depends upon business fundamentals, credit score, loan term, and credit usage and history.”
Funds with Lending Club are a little slower than the average in terms of online lending. It takes between 2- 14 days to receive the funds, in comparison to 24 – 48 hours offered by many other lenders.
Lending Club only offers the term loan, not the business line of credit. The term loan ranges from $5,000 to $500,000 and can be used for a range of purposes – equipment financing, working capital, the purchase of fixed assets, etc. Once you meet the eligibility criteria, the entire process is automated and easy to manage.
Lending Club rates each loan A – D. An ‘A’ grade loan will have an APR of 9%, while a D grade loan will have an APR closer to 36%. So your rate depends on your financial situation. Lending Club has recently discontinued grades ‘E’, ‘F’, and ‘G’ due to continued defaults in these categories.
|Annual Percentage Rate||9% – 36%|
|Loan Range||$5,000 – $500,000|
|Repayment Terms||6 Months – 5 Years|
|Collateral||Yes, If Over $100,000|
Fees, Rates, and Penalties
Lending Club makes its money by charging an origination fee to the borrower/applicant and a service fee to the lender (the interest is paid by the borrower to the lender, not to Lending Club).
The borrower can repay the loan at any time without penalty, which is an advantage Lending Club has over its competitors. For late payments, the penalty would be either $15 or 5%, whichever is the greater. While Lending Club does not advertise an APR, the commonly cited average is 9 – 36%. The average origination fee is around 5%.
|Loan Type||Term Loan|
|Origination Fees||3.5% – 8%|
|Late Payment Fees||Yes ($5 or 5%)|
|Total Average APR||9% – 36%|
Get up-to $500K with Lending Club!
Lending Club Eligibility Requirements
Lending Club has among the lowest eligibility requirements on the market. Like all online lenders, loans to certain industries (gambling, pyramid schemes, other loan operators, etc) is forbidden. The average Lending Club borrower has a credit rating of 700. Keep in mind that while there is no minimum credit score, you really need 600 to be accepted. And the lower your score, the higher your APR.
|Minimum Credit Score||600|
|Minimum Annual Revenue||$50,000|
|Minimum Time in Business||12 Months|
The Lending Club Application Process
The Lending Club application process can be completed in less than 5 minutes and is comparable to OnDeck. Applicants fill out some basic information online, and see if they qualify or not. After the application process is completed, the applicant will be made an offer. If the offer is accepted, then an identity verification procedure takes place.
Documents needed to verify client identity will include 3 months of recent bank statements, IRS Form 4506-T, and business tax returns. A soft pull of your credit check is done at the start of the application, and a hard pull at the end. The difference is that the hard pull will affect your credit rating.
Your credit payments will be reported to the 3 major credit rating agencies (Experian, Equifax, and TransUnion) so you can improve your credit score. Obviously, late payments will negatively affect your score. Overall, the Lending Club application process is very straightforward with few reported problems.
Get up-to $500K with Lending Club!
Lending Club has an A+ rating with the Better Business Bureau (‘BBB’). This is an organization dedicated to business transparency, and complaints can be filed with the BBB. Lending Club is also endorsed by the US Women’s Chamber of Commerce. It was the first loan provider to register its offerings as securities with the Securities and Exchange Commission (‘SEC’). All deposits are insured by the Federal Deposit Insurance Corporation (‘FDIC’).
However, investors who buy notes are not FDIC insured. Only borrowers are. Lending Club is not the most transparent lender in the market and tends to change its offerings frequently. This is due to the nature of the marketplace, with Lending Club issuing notes which investors purchase. The mechanism is a little complex with more red tape and legal requirements. There are different criteria for investors and borrowers, and different criteria for personal and business loans.
In addition, the website is confusing and difficult to navigate and see outstanding balances clearly. It uses a ‘Total Annualized Rate’ instead of an APR, and does not use the Smart Box model seen with other lenders.
Even still, it is up to the borrower to understand the terms and conditions of each loan before acceptance.
Regulatory and Legal Status
Lending Club has its headquarters in 595 Market Street, Suite 200, San Francisco, CA 94105, USA. The loans are issued by WebBank, based in Salt Lake City, Utah. Lending Club is a public company, which means that is has increased regulatory scrutiny. It was the biggest tech IPO in 2014, raising nearly $1 Billion. It is listed on the New York Stock Exchange as ’LC’. Lending Club has come under some scrutiny with its advertising practices but has since sorted out all of these legal issues.
Every customer with Lending Club has their own dedicated advisor based in the USA, available from 6 AM – 5 PM PST. The Lending Club customer service team is good by industry standards. However, it should be understood that Lending Club is primarily a technology company, utilizing the power of technology to automate loans with as little human intervention as possible.
So the customer service is not as friendly as other online businesses where customer service is the central component of the business. If you run into any issues with your loan application, you may be out of luck.
Lending Club is generally held to excel in two primary areas. The first is for new businesses that use the personal loan for business purposes (this is legal to do, but the total loan amounts will be lower). People who go down the personal loan route will have no issues.
The second area is for businesses with lots of outstanding debt that want to consolidate. This option is provided for in the application process, and you can refinance your existing loan obligations to one neat monthly repayment. If you want to pay off credit card debt, then Lending Club is likely your best option.
If you are a new business, then Lending Club is not for you. The APR will be too high, unless you take a personal loan.
Some of the additional features available with Lending Club include:
- 5 Minute Quote – Borrowers can get a quote in 5 minutes without affecting their credit score.
- Repayment Date Change – Lending Club will allow you to change the date of your loan repayment.
- Investment Options – Using the Lending Club platform, you can find invest in $25 increments, finding the best loans to suit your preferences. You can build an entire portfolio with extra cash by choosing the right loans.
- Automatic Credit Reporting – All payments are automatically reported with the 3 largest credit rating agencies to strengthen credit scores.
- Extensive Knowledge Base – Lending Club has a gigantic knowledge base to answer any and all questions that an investor or borrower may have.
Lending Club has a stellar 5-star reputation on Trustpilot, with over 1,000 reviews. However, reviews on Consumer Affairs and the Better Business Bureau are mixed. The most commonly cited positive reviews with Lending Cub are:
- Fast Funding – In many instances, the funds are in accounts with 1 or 2 business days.
- Easy application process – It takes just 5 minutes and the funds can be with the business in less than a week.
- Great Investment Platform – Investors have a great experience loaning money in this marketplace, with neat statistics and infographics, as well as decent rates of return.
The negative reviews stem mainly from people with poor credit ratings and poor fundamentals, who are not happy with the interest rates. Other concerns are in relation to additional documentation requirements, which is again related to businesses that may not be in the most optimal position. However, there are genuine criticisms in relation to the lack of transparency. People find it difficult to navigate the site and understand what they will be paying.
Lending Club FAQ
What is Lending Club?
Lending Club is a peer to peer lending marketplace connecting borrowers with investors. The process is automated and after an online prescreening the loan can be processed. Repayments are made monthly. Lending Club is one of the first and largest peer to peer lending marketplace, allowing ordinary citizens to gain access to credit without going to a bank.
How Does Lending Club Work?
Borrowers fill in their information and loan requirements. These loans are given a grade from A – D. This rating determines their interest rate on the loan. Lenders then fund the loan in $25 increments. So the loan could be funded from over 20 different people. To achieve this, investors purchase ‘notes’ which are fractionalized securities or tiny loan slices. These Notes are registered with the SEC as securities.
How Long Does It Take Lending Club to Approve Money?
After approval, the funds are typically delivered within 4 days or so. The total range is between 1 – 14 days. However, if you need to supply additional documentation, then the entire process could be delayed.
How Do I Close a Lending Club Account?
You must finish paying off your loan before it is closed off. Once you pay off your loan, the account is then closed. The final payment will be reported to the 3 credit bureaus within 30 days. If you did not accept or receive an offer, then no account is active.
How Do I Invest in Lending Club?
You need to meet the eligibility criteria. The minimum investment you can make is $25, which is great for small-time investors. This helps to offset the risk. To invest, you need to make a minimum $1,000 deposit. Residents of Alaska, New Mexico, North Carolina, Ohio, and Pennsylvania cannot invest. You must have a net worth over $250,000 or gross annual revenue of $70,000. You can only purchase notes up to 10% of your net worth.
What Happens If You Default On A Lending Club Loan?
Lending Club has a very strong debt collection procedure. If you miss a payment, be prepared for a call within 24 hours. They work with several external debt collection agencies. These agencies have tools to track customers, even when they move locations. Ultimately, defaulting on your loan is just not a good option. You will end up with a poor credit rating or in a courtroom. As you signed a personal guarantee for the loan, your property could be at risk.
Lending Club Summary
For people that do qualify with Lending Club, funds can be generated within a week with little stress. The entire term loan process is automated and the rates are quite reasonable, if not ultra-low.
It’s a great place to get a term loan for businesses, especially those looking to consolidate existing debt into one easy monthly payment.