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ACH Payments: What Small-Business Borrowers Need to Know

Sept. 28, 2015
Small Business
Online Small-Business Loans and ACH Payments: What You Need to Know
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Do you like writing checks to pay monthly bills? If so, you might be one of a dying breed. For small-business loan payments, the paper check is becoming a relic. The growing alternative lending market prefers ACH payments. When comparing online loans, it’s important to know not just how often — but exactly how — you’ll make your repayments.

These factors affect your business’s cash flow and can result in fees if you’re not careful.

What are ACH payments?

Alternative lenders require small-business loans to be repaid daily, weekly, biweekly or monthly, and most require ACH payments, or automatic bank withdrawals. Only a few lenders give you the option of mailing in a paper check each month.

Chances are high that any automatic bank withdrawals to pay off your small-business loan are made through the Automated Clearing House network. According to the network, it handles “more than 90% of the total value of all electronic payments in the U.S.” Funds are simply deducted from your personal or business checking account whenever your payment is due.

There are no fees for using direct payments via ACH. You usually just have to provide the account and routing number from the bank. Withdrawals should help save your business time and stress: no setting up payment reminders, manually paying online or mailing in a check to pay, and no more late fees or missed payments.

E-checks also reduce the potential for errors and fraud as fewer people handle the transaction, according to Intuit QuickBooks.

Borrowers should still scrutinize their monthly statements to make sure the correct amount of money is being withdrawn from the account, just in case of an error. You’ll also want to make sure you have enough cash in your account to cover the loan payments, or else you risk an overdraft fee.

How online lenders require you to pay

Kabbage: Kabbage’s line of credit is repaid once per month over six months. Kabbage requires borrowers to repay either using a PayPal account or through ACH withdrawals from a checking account.

OnDeck: For OnDeck’s term loans, the lender deducts a fixed daily payment via ACH through a business bank account, either on a daily or weekly basis. This results in more frequent but smaller repayments. On the line-of-credit product, repayments are automatically deducted from your business bank account on a weekly basis over six months.

Daily or weekly repayments makes sense for a lot of businesses, OnDeck CEO Noah Breslow told NerdWallet in a recent interview. Business owners, he says, don’t always plan ahead for a large, one-time monthly payment.

“Borrowers are able to say, ‘Look, my OnDeck payment is $100 and I know that’s happening every day and I can plan for it,’” Breslow said.

Lending Club: Lending Club’s business loans are repaid once a month. Borrowers set up automatic monthly deductions via ACH by default. But if you prefer to pay by personal check, you can email or call the company and make it happen.

If you choose to make payments by check, Lending Club will charge you a $7 check processing fee for each payment made. Lending Club also charges a $15 fee if you have insufficient funds in your account when an automatic payment comes due.

Prosper: Loans are repaid monthly. Borrowers set up automatic monthly deductions from a bank account via direct ACH payment. Borrowers have the option of cancelling automatic withdrawals by contacting Prosper’s customer support team and instead can mail in personal checks, according to the company.

If for some reason the check doesn’t go through, you’ll be charged a $15 failed payment fee, and if your monthly payment is 15 days or more late, you’ll be charged a late fee of either 5% of the unpaid amount or $15, whichever is greater.

Fundation: Payments are automatically withdrawn from your business checking account twice per month. Fundation says electronic payments help borrowers avoid late fees and result in an interest rate discount for the loan.  

SmartBiz: SmartBiz originates SBA loans that are repaid once per month over a period of 10 years. SmartBiz loans are repaid via automatic ACH withdrawal, according to Evan Singer, general manager. It’s easier for customers and saves banks time, Singer told NerdWallet by email.

Funding Circle: This online lender requires monthly payments, debited directly from a borrower’s bank account via ACH withdrawal. “While borrowers also have the option to make payments through other channels, such as a check, almost all of them choose the convenience of automatic payments via ACH,” says Liz Pollock, Funding Circle spokeswoman.

If you have any questions regarding how your small-business loan repayment process will work and how you’ll be expected to repay, ask the lender — before signing off on a loan.

Find and compare the best small-business loans

To compare your options, NerdWallet has compiled a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged the list by categories that include your revenue and how long you’ve been in business.

Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @StevenNicastro.

To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

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