Why you might (and might not) want to secure financing for your business straight from the source.
A direct lender can be a great choice when you know exactly what your business needs and have some experience applying for credit. If you’re new to business financing, however, you may want to consider some other options.
How do direct business lenders work?
A direct lender is a financial company that underwrites, processes and funds business loans. In other words, there’s no middleman involved in the application process. When you apply for a loan from a direct lender, your information stays in one place. Direct lenders also typically handle loan repayments.
Direct lenders are best for businesses owners who have the resources to compare lenders and research which type of financing works best for their business’s needs. It’s also easier to find a loan from a direct lender if you have good to excellent credit, at least one year in business and consistent cash flow.
3 best direct business lenders
Thinking of working directly with a business lender? Start with one of our top three picks.
1. LoanBuilder: Best for short-term business funding
LoanBuilder is a PayPal service that has a streamlined application and minimal requirements. Applying involves filling out a quick online questionnaire, submitting a few documents and signing your contract. Typically your business can get funds the day after approval. It offers loans from $5,000 to $500,000 with terms from 3 to 12 months.
The downside is that it charges a fixed fee instead of interest, meaning that you can’t save by paying off your loan early. It also requires weekly, rather than monthly repayments. These can be tough to make if your business has a spotty cash flow.
2. OnDeck: Best for easy-to-manage loans and lines of credit
OnDeck is a direct online lender that offers two products: business term loans and lines of credit. Through OnDeck, your business can borrow between $5,000 and $500,000 with reasonable interest rates. Terms range from 3 to 36 months.
It only takes a few minutes to complete its quick application and boasts excellent customer reviews on Trustpilot. While its eligibility requirements are slightly tighter than LoanBuilder’s, it relies on alternative data like shipping records rather than your business’s credit score and revenue alone. The downside is that it charges weekly or daily repayments and doesn’t lend to all industries. But if you’re looking for a lender that offers an intuitive platform that makes repayments and managing your loan account easy, then OnDeck might be for you.
3. Kabbage: Best for lines of credit
Kabbage is another direct online lender that offers credit lines that are great for ongoing expenses like restocking inventory. Approval only takes a few minutes, and once you’re approved your business can get access to a credit line between $500 and $250,000.
Like OnDeck, Kabbage also relies on alternative data, so it’s typically more flexible than a bank when it comes to eligibility requirements. However, it charges a complicated fee structure instead of interest, which can make it difficult to understand how much your credit line actually costs.
When applying with a direct lender makes sense
- You know what type of financing you need. Many connection services are designed for borrowers who aren’t sure about what type of financing their business needs. When you know what you want, going directly to a lender can actually save you time.
- You have time to shop around. To find the right direct lender for your business, you need to spend some time comparing what’s out there. Once you’ve narrowed it down to a few, you might want to consider prequalifying so you can make a more personalized comparison.
- Your business doesn’t struggle to qualify for a loan. You’ll have more competitive options to pick from if you have strong credit and your business has strong revenue.
When using a broker or connection service makes sense
- You don’t know where to start. The main benefit of a connection service or broker is that many are designed to help your business find financing that fits its needs, even if you don’t know the first thing about loans.
- You don’t have the time to compare. Some more hands-off online marketplaces help you quickly compare rates that your business might qualify for with several different lenders in just a few minutes. Some can also help you speed up the application process for a fee.
- You need help with the application. Some services like BoeFly go above and beyond to package your application and help you come up with a strong business plan — usually for a fee.
- You don’t have the best credit. Finding a legitimate lender when your business doesn’t meet most lenders’ standards can take extra time. A connection service or broker could help.
- You’re still in the startup phase. Business loan marketplaces can help you find a loan that your business qualifies for and sometimes guide you through the application process as a new business owner. Though they don’t provide the funds themselves.
Compare more business loan options
Can I get a startup loan from a direct lender?
It’s possible for startups to get financing from a direct lender, though it might not be the most efficient way to find funding. Even the more flexible lenders like LoanBuilder, OnDeck and Kabbage require your business to be around for a certain amount of time — in most cases at least a year.
Using a broker or connection service might be a quicker way to compare lenders that your business qualifies with, especially if you use one that specializes in startup financing. If your business is struggling to qualify for funding, you might also want to look into startup grants.
6 steps to apply for a business loan from a direct lender
One of the benefits of borrowing directly from a lender is that the application process is typically a lot less involved than that of other options. Online lenders in particular often have applications that you can fill out in a matter of minutes and ask for minimal documentation.
- Prequalify. You’ll fill out a quick online form with basic information about you and your business. The lender typically runs a soft credit check that doesn’t affect your score and gives an estimate of the loan amount, terms and rates you might qualify for.
- Complete the application. Your lender might have some additional questions about you and your business. Many have an additional online form, while others might want to speak to you over the phone or ask questions over email. Once you submit your application, the lender often runs a hard credit check that temporarily lowers your credit score.
- Submit documents. Lenders typically ask to see bank statements and tax returns at the very least. Some might also ask for a balance sheet, financial projections and more.
- Review your offer and terms. If your lender accepts your application, review the rates and terms one last time.
- Sign the loan documents. Read the contract to make sure you understand how repayments work and what additional fees might apply before you sign.
- Receive your funds. How long it takes to get your funds depends on the lender. Many online lenders can get your business its money within one business day. Others can take up to a few weeks, especially if you’re applying for a large amount.
Borrowing from a direct lender can save your business time if you know what you’re looking for. But it might not be so easy to find a lender that’s right for you if you’re inexperienced. To learn more about how business loans work and start comparing lenders, connections services and more, check out our business loans guide.
Frequently asked questions
Image source: Shutterstock