National Funding: How Its Business Loans Stack Up

Steve NicastroMar 16, 2017
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San Diego-based National Funding has been financing small businesses since 1999 and has originated over $1.5 billion in loans. The alternative lender provides fast short-term business loans, merchant cash advances, and equipment financing and leasing to businesses in all 50 states.

National Funding was originally focused on equipment leasing, then introduced merchant cash advances in 2008. MCAs give businesses a lump sum of cash in exchange for a percent of future credit and debit card sales. The high-cost product now makes up about 1% of National Funding’s total originations, according to CEO Dave Gilbert.

In recent years, the company has shifted its focus to business loans, Gilbert says. With its business loans, borrowers have access to faster funding and looser qualifications than with banks.

National Funding’s business loans, however, typically require daily repayment and carry high borrowing costs, characteristics similar to MCAs.

Here’s what you need to know about small-business loans from National Funding.

How National Funding works

  • Loan size: $5,000 to $500,000

  • Cost of funds: 15% to 30%, average of 26%*

  • Speed: Funding as fast as 24 hours

  • Repayments: Fixed daily or weekly payments over six to 15 months

(*This is the total interest paid on the loan and does not represent an annual percentage rate, which is the total annual borrowing cost with all fees and interest included. National Funding declined to provide an APR range for its loans.)

Industries served: National Funding serves a wide range of industries, including retail, trucking, construction and contractors, beauty salons, restaurants and agriculture. Its business loans are most commonly used for short-term working capital or growth opportunities, such as loading up on inventory before a busy season, marketing, payroll, or finishing off a construction project, according to Gilbert.

How to qualify: For its business loans, borrowers need to have been in business at least one year, have a minimum credit score of 600 and earn at least $100,000 in annual revenue. The submission of three months of business bank statements is required on the application.

National Funding favors some industries over others, according to Gilbert. For example, established retail stores and restaurants, auto repair shops and medical businesses are preferred over higher-risk industries such as construction and transportation. No collateral is required, but like many other alternative lenders, National Funding requires a personal guarantee, which puts your personal assets and credit at risk if you fail to repay the loan.

Equipment financing

National Funding also offers equipment financing and leasing for new and pre-owned equipment. Approximately 30% of National Funding’s equipment financing is used for construction and related industries, while 25% is used for financing titled vehicles, such as semi-trailer trucks.

Rates for equipment financing range from “8% to the high teens,” which is lower than its business loans because the equipment is being used as collateral, Gilbert says.

Once a customer finds a vehicle to purchase or lease, they contact National Funding to apply for credit and, if approved, fax in the quote or invoice to be paid.  Borrowers who have been in business at least six months and have a credit score of over 620 can obtain between $5,000 and $150,000 to finance or lease equipment, with loans repaid monthly over a period of three to five years.

Merchant cash advance

MCAs are available for businesses that have strong credit- and debit-card sales, such as restaurants or retail. However, MCAs carry very high borrowing costs (40% to 350% APR), and the daily payment structure can cause cash-flow issues.

Like the majority of National Funding’s business loans, its MCAs are repaid daily. However, instead of deducting payments automatically through a bank account, National Funding takes a percentage of your card sales until the total agreed-upon amount is repaid in full.

Like other MCA providers, National Funding uses a factor rate to determine your total payback amount with fees. You multiply the cash advance by the factor rate to get your total repayment amount. For example, if you borrow $20,000 at a factor rate of 1.3, you’ll repay $26,000. National Funding’s factor rate on MCAs ranges from 1.18 to 1.34, and its MCAs are typically repaid in six to nine months, according to Gilbert.

To qualify with National Funding, you’ll need to have been in business at least one year and have monthly credit card transactions over $3,000.

Because repayment is based on a fixed percent of your sales, you’ll repay less when business is slow and pay more when business is booming. Unlike National Funding’s other products, a personal guarantee is not required, so your personal assets and credit score aren’t on the hook if your business fails.  

Use NerdWallet’s MCA calculator to figure out your total potential borrowing costs.

National Funding loan vs. other small-business loans

National Funding is an option for short-term cash needs, as long as you expect your profits to exceed the total cost of the loan. The lender offers speed, convenience and ease of qualification compared with loans from banks and other alternative lenders. Loans can be obtained in just 24 hours, with an average time to funding of 48 hours.

National Funding loans are more expensive than traditional bank loans, which typically carry APRs of less than 10% and have longer repayment terms.

National Funding reports your payment history to the business credit bureau Paynet, so repaying its business loan on time should help you build business credit. The lender’s business loan product also offers partial savings on interest if you repay the loan early.  

Given its short repayment terms (loans are repaid over six to 15 months, with an average of seven months) and high borrowing costs, National Funding rates are much higher than bank loans and likely to be higher than other online lenders, whose APRs range from 8% to 99%.

National Funding declined to provide a specific range of APRs, a measure that represents the true annual borrowing cost with all fees and interest included.

Borrowing costs for National Funding loans range from 15% to 30% of the loan amount, with an average borrowing cost of 26%, according to the company. The lender’s borrowing costs include a 1% origination fee.

For example, a $100,000 loan costs borrowers $26,000 on average. If the loan is repaid seven days a week over a seven-month repayment term, you’d pay about $600 daily. The APR on the loan would exceed 80%.

National Funding’s daily or weekly repayment structure also may not be the best fit for businesses with uneven cash flow, as the frequency of repayments on its business loans and MCA products can cause cash-flow issues.