Decoding a Loan Offer from Fundation

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Fundation is one of the new alternative lenders who aims to fill the gap between banks and merchant cash advances/cashflow loans. Their interest rate ranges from 8 – 25% with a 1-3% origination fee. Unlike lenders with similar cost such as LendingClub, FundingCircle or Dealstruck, Fundation is NOT a marketplace lender. They lend directly from their balance sheet. Fundation aims to be more accountable — to take the actual default risk of the loans they originate and make more profit if their underwriting engine proves to be accurate.

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Fundation offers loan amounts from $50,000 – $500,000 depending on your needs. The Fundation loan application is quite different than other processes we’ve gone through — they communicate a lot more about your credit standing based on your industry, years in business, etc.

Before we start, let’s go through Fundation’s pre-qualification requirements. To prequalify for a loan from Fundation, your business must meet the following requirements:

The Application

The first page of the application asks questions about the nature of the business to analyze the business’s risk level. Here are the details of my business:

  • Business name: Navtastic Hair Salon
  • Amount requested: $75,000
  • Loan term: 3 years
  • Use: renovations / capital improvements
  • Years in business: 4
  • Number of employees: 2
  • Ownership: 100% ownership
  • Annual sales: $650K

I went through 2 more multiple choice questions asking about the type of service I provide my clients.

Since they have adequate information about the industry my business falls under, they were able to provide me with a baseline risk analysis of the industry. The great part about Fundation’s risk analysis process is that they showed me how much businesses in my industry borrow on average and, via an interactive graph, how my industry’s loan default rate compares with other industries. The interactive graph offers loan default rate averages of 27 industries besides my own. Some of the default rates on these industries are quite striking.

After the industry risk analysis, the application continues to gather information to analyze my business’s risk. First, they asked for loan information: how much I’m requesting, the term I’m requesting, use of the proceeds, and any debt my business owes.

Next is business information: where I’m located, how many employees, ownership, etc.

With these 2 pages of information, they were able to tell me how my business’s profile stacks up against other businesses seeking loans. They analyze this based on the industry information I provided in the previous steps, the length of my business history, and the size of my business. Because my business beats the Fundation minimum tenure of 2 years, I ranked well. My business size and scale didn’t rank so well because I have < 3 employees.

Next, they asked for my personal financial information and SSN to do a personal credit check.

It says I have excellent personal credit!! (Yes, I do. My credit score is 800+.)

Next, Fundation checks my business credit. Since the Hair Salon is a made-up business, they couldn’t find any business credit info, which makes sense.

They want to verify my identity by asking the following questions:

Finally, they showed my application results. Instead of giving me a quote, they want to "discuss the application together." I spoke to a rep on the phone. He told me that if I have 2+ employees and they find sufficient business credit history, they will give me instant pricing of interest rates. They couldn’t do that automatically because of my lack of business credit history and small company size.

Finally, Fundation asked me to upload bank statements or link directly to my business banking account.

What We Have Learned

Fundation’s loan products are designed to serve established businesses for improvements or expansions. It works especially well for business owners who don’t have enough collateral to qualify for a bank loan or who want to get the loan in a timely fashion.

Fundation’s online application take a bit longer to complete than other marketplace lenders. However, the time spent up-front minimizes the additional paperwork after you finish the application. They only asked for bank statements and tax returns. They DON’T require business owners to submit financial statements, business plans or financial projections. If you do qualify for the loan, time to funding can be less than a week.

Comparisons to Other Market Place Lenders

Although I didn’t get instant pricing from the application, I was able to compare Fundation’s loan details to those of Dealstruck, Funding Circle, and Lending Club from the information on the Fundation website.

Fundation Dealstruck Funding Circle LendingClub
Repayment Terms 36 months 24 months 36 months 36 months
Loan Origination Fee 1 – 3% 3 – 4% 2.99% 3.5%
Loan Interest Rates 8-25% 15.68% – 20.63%** 9.99% – 18.49% 14.9%***
Loan APR 9.38% – 26.53% 19.90% – 24.94% 12.76% – 22.74% 17.43%
Loan Amount (on business term loans) $50,000 – $500,000 $50,000 – $250,000 $25,000 – $500,000 $15,000 – $100,000
Loan Duration Up to 4 years Up to 3 years 3-5 years 1-3 years
Speed to Funding 2-5 days 4-7 days 1-2 weeks 1-2 weeks
Required Documentation 3 years of tax returns
6 months of bank statements
1-2 years of business and personal tax returns

updated financial statements (past 60 days)
bank account access
2 years of P&L
2 years of balance sheets
3 years of tax returns
6 months of bank statements
3 years of tax returns
6 months of bank statements
** based on particular example

***based on a particular example


Fundation’s loan products are clearly very competitive with other alternative lenders that aim to serve established businesses who don’t qualify or don’t have time for bank loans. If you have an established business in a low-risk industry, chances are you will get a loan with very competitive rates. The best way to find out is to shop around. You may have to spend 15 minutes on each of these lenders, but you will end up saving thousands through the life of the loan.

Overall, Fundation is a good alternative to bank loans. It’s more expensive but it takes less time and it’s easier to qualify. The application is very educational and transparent. You will get instant pricing if you have sufficient business credit history. Even if you don’t qualify for their loans right now, they will tell you why. You can work on improving your business creditworthy-ness and revisit Fundation in the future.

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About the Author — Lydia serves as Content Manager for Nav, which provides business owners with simple tools to build business credit and access to lending options based on their credit scores and needs.

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