If you’re a budding entrepreneur, chances are that friends and family will be among the first lenders to your business, if they aren’t already. And that’s for good reason: At this stage, they know you better than a bank does.
Able Lending, an alternative small-business lender, brings that kind of informal borrowing into the social media age, helping borrowers recruit their friends and relatives online and give them a secure platform to contribute from $1,000 to $1 million in funding.
The lender administers friends-and-family loans, which are entirely funded by people you recruit. This is a good option if you’re getting your business off the ground.
For businesses at least a year old, Able offers a combination lending model called an Able Growth loan, in which the lender becomes a backer, too, alongside friends and family. Able also offers business loans funded entirely by the company.
Able Growth loans represent over 60% of the firm’s outstanding loan balance of $40 million, says Mihir Korke, Able’s chief marketing and growth officer.
For the combination loans and for the more conventional, 100% Able-funded loan, amounts range from $25,000 to $1 million with one- to five-year terms and APRs ranging from 8% to 25%. Borrowers typically use their loans to stock up on inventory, refinance pricier debt, invest in new equipment or expand their businesses.
Since it started lending in 2014, the company has had no defaults, Korke says. “It’s peer pressure,” he explains. “You’re borrowing from your network, so you’re more likely to pay us back, and your networks back, in the process.”
Reasons to use Able Lending
Ease of bringing on and paying back friends and family: Able makes it easy to recruit backers by setting up a pledge page similar to those on crowdfunding sites such as Kickstarter and GoFundMe. Able Growth loans, on average, have three backers. Backers must contribute at minimum 10% of the loan amount, though they typically pour in up to 25%, Korke says. After the loan is funded, you make one payment a month, which Able distributes. Backers get interest-only payments until Able’s portion of the principal is paid in full. After that, backers receive interest-and-principal payments.
More backers means lower rates and longer terms: When Able conditionally approves your Growth loan, it presents you with loan scenarios that vary with the number of backers involved, how much they contribute and the rate they will receive. In general, the more backer funds you raise, the more wiggle room Able has to offer you a lower overall rate for the loan. Growth loan APRs range from 8% to 25%, which is competitive among online lenders. The rates include a 5% origination fee. The company says Growth loan borrowers receive an APR of 12.65% on average.
Also, with a higher proportion of backer funding, Able can offer longer terms, which lower your monthly payments. (Able’s dynamic proposal tool helps borrowers understand how the variables affect monthly payments.) The company says its flexibility on backer-funded loans makes it particularly attractive to borrowers trying to refinance pricier debt.
Keeping it in the Family (and Friends): Able offers Friends and Family loans, which are entirely backer-funded and aimed at brand-new businesses that stand little or no chance of securing financing from a traditional bank or even other online lenders.
Able puts none of its own money into the loans, but charges an origination fee of 3% of the loan amount for administering them. Able streamlines the legal and administrative aspects of enlisting friends and family, then handles the payback process. In doing so, the company helps protect your relationships, Korke says.
Funding amounts for Friends and Family loans range from $1,000 to $1 million, with terms (such as rates and payment schedules) agreed upon by the borrower and backers. APRs start as low as 3%.
No prepayment fees: Able doesn’t charge prepayment penalties. So paying off the loan balance early eliminates a liability from your balance sheet and saves you on interest.
Where Able Lending falls short
Not currently lending in six states: Able currently lends in 44 states and the District of Columbia, so you should seek other lenders if your business is based in California, Delaware, Nevada, North Dakota, South Dakota or Vermont.
Not for borrowers with bad credit or brand new, pre-revenue businesses: Businesses applying for the Growth or Able-funded loans must have operated for at least one year, have positive year-over-year revenue growth and have at least $100,000 in annual revenue. Borrowers must have a personal credit score of at least 600 and sign a personal guarantee. Korke says that Able’s underwriters generally focus more on the financial health of the business, but they look at personal credit to get an idea of how responsible a borrower is and any significant debts he or she has. In addition, you must be bankruptcy-free in the 12 months prior to funding.
Unpredictability and variability in backer funding: For Growth loans, Able doesn’t provide funding to borrowers until all backers have paid their contributions. If there are laggards, it’s up to you to make sure they fulfill their pledges. In general, Able gives borrowers two weeks to get all their backers in line, though it can be extended to a month, Korke says.
If anyone backs out, Able can fund the loan at a higher proportion, but the friends-and-family portion cannot fall below 10% of the total amount of the Growth loans, Korke adds.
In addition to doing background checks on backers to identify potential fraud, the lender requires at least two backers who are not the borrower or immediate family members. All backers must be U.S. residents and make their contributions in U.S. dollars.
Compare Able Lending to other lenders
If you want to compare Able Lending with other lenders, use NerdWallet’s small-business loan tool. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.