Peer lending proponents cite the ease and speed in which one can get a loan: an application can take as little as 10 minutes to complete. Platforms assess risk and determine a borrower’s credit grade using data-driven algorithms including traditional underwriting statistics, real-time business accounting, payment and sales history, online customer reviews, and other nontraditional information—even standardized test score like SATs. Qualified applicants can get a funding decision usually within 24 hours.
Borrowing limits vary by portal, with some like Funding Circle offering up to $500,000. The loans are generally available for 36- and 60-month periods. Business lines of credit are also available. Interest rates are based on the strength of the borrower’s credit profile, as are loan origination fees that can range from 1 to about 7 percent. Launched in 2007, the Lending Club is the largest P2P platform in the United States.
Invoice trading
Businesses wanting to free up capital tied to unpaid invoices can look to online trading platforms, also called peer-to-peer invoice trading. These platforms are a hybrid between invoice financing and peer-to-peer lending. The invoices are sold to an online community of investors at a discount for cash but without some of the traditional aspects of factoring.
At BlueVine, which offers credit lines from $20,000 to $2.5 million, there are no lengthy contracts and businesses do not have to commit all their invoices.
Produce Pay is a company that specializes in agricultural cash flow solutions for growers and distributors. The company operates differently than a platform like BlueVine. “We ask growers to commit to a certain volume at the beginning of the contract,” explains Produce Pay’s James Alexander, who handles credit underwriting and capital markets. “They put up a deposit; if they hit that volume, they get the deposit back,” he notes.
Produce Pay’s invoice platform enables grower-shippers to get paid up to 80 percent of the shipment’s value once it is accepted by the distributor. “The value proposition to the grower is ship today, get paid tomorrow,” Alexander says.
The company operates within the confines of the Perishable Agricultural Commodities Act. Produce Pay takes title to the goods and resells them to the distributor. Growers enter shipments into Produce Pay’s system, the distributor enters when the shipment is accepted, and the money is wired to the grower, less a 1 to 1.5 percent service charge.
Distributors benefit, too, since it eliminates the need for advances. “We are not a lender,” stresses Alexander. “We are a supercharged distributor that can offer other distributors leverage.”
Produce Pay works with growers that average about $2.5 million in invoice value and must pass a credit check using eight data sources. Online application approval usually takes an hour if all needed documentation is in order. About 75 percent of applicants are approved.
