5 Things to Know Before You Use a Lending Marketplace

How a marketplace works

You complete one application and the marketplace matches your file with funders that fit it. You then choose among offers or decline them all.

Instead of applying to five lenders one at a time, you share your business details and documents once. The marketplace matches your profile with funders whose criteria you meet. Offers may arrive in different products: term loans, lines of credit, working capital or equipment financing.

ROI Funder works this way, using a network of funders and matching each file to the ones that fit. Compare the idea to a direct bank application in pros and cons of bank business loans.

Thing one: ask what kind of credit pull it uses

A soft pull does not affect your score. A hard inquiry can lower it a little. Ask which one applies before you submit.

Many marketplaces start with a soft pull to match you, then a funder may run a hard inquiry only if you accept an offer and move to final approval. Confirm this in writing. If every funder runs a separate hard pull, several inquiries in a short time can add up.

ROI Funder uses a soft credit pull to apply, so applying does not affect your credit score. For background, read hard inquiries.

Thing two: look at total cost, not the headline number

Rates, factor rates, fees and payment schedules are quoted differently. Convert every offer into total repayment and monthly-equivalent payment.

One funder may quote an interest rate. Another quotes a factor rate. Another shows a daily payment. These cannot be compared as they appear. Use these steps:

1. Write the amount funded and the total you will repay.
2. Subtract the amount funded to get the cost.
3. Divide total repayment by the number of months to get a monthly equivalent.
4. Add origination and other fees to the cost.

Tools such as what a 1.3 factor rate costs and daily payment to monthly equivalent help with the conversion.

Thing three: check speed against your real deadline

Marketplace speed depends on the product and on how complete your file is. Same-day funding is possible on complete files, but SBA loans take longer.

A complete file means the application plus three months of business bank statements. Missing pieces cause most delays.

Thing four: understand fees and prepayment terms

Ask about origination fees, prepayment penalties or discounts, renewal terms and any required holdbacks before you accept.

Fees can change the cost of an offer a lot. Ask:

• Is there an origination or underwriting fee, and is it deducted from the amount funded?
• What happens if I pay early? Is there a discount or does the full amount still apply?
• Does the funder require a personal guarantee or a lien? See personal guarantee and UCC filings.

Get answers in the offer documents, not just in conversation.

Thing five: compare offers on what the money will produce

The right offer is the one whose total cost is comfortably below the profit the money will generate, with payments your cash flow can carry.

Start from the purpose. If $50,000 of inventory should bring $90,000 in sales and $30,000 in gross profit, an offer costing $8,000 leaves a clear margin. If the profit would be $9,000, even a cheap offer is risky.

Use compare two funding offers to line them up, and test whether payments hold if sales dip with stress test payments.

Is a marketplace right for you?

It is a good fit when you want options without repeating applications. It is a poor fit if you want a single relationship with one lender.

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. If that is you, the process takes a few minutes to start, and you are never obligated to accept an offer. When you are ready, apply here.