Business

How To Prepare For The Post PPP Reality: Evaluate Online Lenders Now

Online Lenders

The US Senate voted to extend the 2020 Small Business Administration’s (SBA) Paycheck Protection Program (PPP) just days before it was set to expire in early 2021. While the program was brought back to life, it will merely be extended through the end of May.

The extension afforded small businesses an extra two months to apply for a small business loan. While certainly a lifeline for many small businesses that acted quickly, many others may not be in a similar fortunate position. With money drying out quickly, small business owners are encouraged to start planning ahead and prepare for the reality that Uncle Sam can’t save everyone forever.

PPP Money is Running Out

The PPP will survive through its termination date or until the program runs out of cash — whichever comes first. As of early April, the SBA oversaw nearly 4 million loans totaling $224 billion. The problem is the fund has a total capacity of $292 billion, so it is roughly 75% complete.

Few small businesses and the general public had anticipated this outcome. In fact, the conversation of the PPP running out of money wasn’t on anyone’s minds until the agency itself acknowledged publicly in a March hearing it is dangerously low on cash.

It is possible that by the time you read this, the PPP program may have very well come to an end. If not, consider the fact that more than 190,000 loan requests were outstanding before May.

So what does all of this mean? In essence, small business owners that had expected to tap government funds will need to secure financing through other means. One of the more popular ways to borrow funds is through reputable online lenders.

Small Business Loan 101: The Two Leading Leaders

Taking a look at this handy Bluevine vs Kabbage chart details the similarities and differences between two of the more notable small business online lenders. First, let’s explore some of the key differentiating factors between the two online lenders.

Bluevine is an online lender that loans capital to small businesses with a repayment term of either six or 12 months. By contrast, Kabbage’s repayment terms extend to 18 months. Another key difference is Bluevine’s lending facility is only open to businesses willing to provide collateral. 

Known as a secured loan, Bluevine requires a lien on a specific asset or assets of the business along with a personal guarantee from a director. Kabbage’s process is less stringent as it requires just a personal guarantee from a director.

Bluevine also provides a unique feature in which a small business can offer invoices as collateral as part of a separate lending product. In this case, a small business owner that demonstrates unpaid invoices can have access to up to $5 million in loans.

Once the invoice is due, the company collects revenue from their customer and simply remits this payment back to Bluevine. Kabbage offers no similar competing product.

Moving on to an equally important metric in evaluating online lenders like Bluevine and Kabbage is interest rates on the loans. Bluevine’s standard line of credit loans starts at 4.8% which is a premium compared to Kabbage’s 4%.

Bluevine’s invoice loan facility starts at 0.25% per week so this could give Bluevine the upper hand against Kabbage when comparing the two online lenders under certain scenarios.

Online Lending Expanding Their Offerings

The competitive environment within the online lending space extends far beyond just Bluevine and Kabbage. There are many other competitors worth looking at before making an ultimate decision but Bluevine and Kabbage are widely considered among the best — and for good reason.

Perhaps most notable, both Bluevine and Kabbage expanded in recent months into business checking accounts. One might even be surprised to know that both Bluevine and Kabbage offer a product where capital flows from the online lending companies into the business owner and not the other way around.

Bluevine struck a partnership with Bancorp Bank and offers a 1% interest rate on a business checking account while Kabbage is able to offer a slightly higher 1.1% interest rate. It would be a difficult task to find a similar rate of return on cash in 2021. 

But between the two, Kabbage offers a checking account that gives business owners a unique tool that offers business insight. The Kabbage business bank account includes a free-to-use tool that leverages algorithms and analytics to help them better manage their cash flow.

Kabbage also includes an online card payment processing service so business owners can start accepting credit card transactions from customers. 

The Bottom Line

Both Bluevine and Kabbage boast among the best reputations in the online lending space. Since the two online lenders are pretty much on par in terms of reliability and credibility, it would be up to each individual business owner to take their time and research all aspects of both online lenders. Either way, with the PPP running low on cash and the government may not be able to come to the rescue, an important decision will have to be made.

So, which online lender has the upper hand? Between the two it would be hard to say. But the fact that Bluevine offers a unique lending feature that lets business owners borrow money out of their yet-to-be-paid invoice could give it the upper hand since interest is charged weekly.

A business owner that is in immediate need of a large sum of capital but will have the means to repay the loan in a few weeks would certainly find Bluevine to be the better option. But for others, this may not be the case so it is wise to properly do your homework.

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