Lending By Wave: Everything Small Businesses Need To Know

Wave is widely considered to be one of the best software choices available for small business accounting needs. Despite the very welcome fact that almost all of its services are completely free, Wave offers a robust set of features that will fit the needs of most small businesses.

Wave doesn’t just help you manage your money. If your business needs capital, Lending by Wave could help you get the funds you need to grow your business.

But what, exactly, is Lending by Wave? And is it right for your business?

Here’s everything you need to know about this service.

Lending By Wave Loans Are Issued In Partnership With OnDeck

The first thing you should know about Lending by Wave is that the loans are actually originated and serviced by OnDeck. Founded in 2007, OnDeck is one of the first business lenders around to bypass banks and offer fast, easy-to-get business loans.

Although OnDeck loans will not work for all businesses and all situations, OnDeck offers flexible, diverse loan products. For a full rundown of the company, read our OnDeck review, though we cover the important information below.

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You Can Get A Short-Term Loan And/Or A Line Of Credit

You may qualify for a short-term loan, a line of credit, or both through Lending by Wave.

Short-term loans are also typically called “cash flow loans” because the lending decision is based on your current cash flow instead of your business’s profitability or how much you might earn in the future.

Short-term loans are structured differently from traditional business loans: the borrowing fee is calculated one time and does not accrue like interest. This way, you’ll know exactly how much you would have to repay before borrowing the loan.

As you might expect, this type of loan is called a “short-term loan” because it is repaid in a short amount of time. However, OnDeck’s term lengths can be longer than most. The lender caps its term lengths at three years, whereas most lenders that offer short-term products won’t go over 18 months.

Here’s a full rundown of what to expect from an OnDeck short-term loan:

• Borrowing Amount: $5K – $500K
• Term Length: three to 36 months
• Effective APR: 11.9% – 99.4%
• Other Fees: Origination fee of 0% – 5% of the borrowing amount
• Collateral: Personal guarantee, UCC-1 blanket lien
• Repayment Frequency: Daily or weekly

Instead of, or in addition to, the short-term loan, you may be eligible for a line of credit.

Like credit cards, lines of credit give you access to a cash reserve from which you can draw at any time. You will only have to pay interest on the amount borrowed; as you repay the loan, the money available to you will replenish.

OnDeck’s lines of credit carry these rates and fees:

• Credit Facility: Up to $100K
• Term Length: six months
• APR: 11% – 57.9%
• Other Fees: $20 monthly maintenance fee (waived under certain circumstances)
• Collateral: Personal guarantee, UCC-1 blanket lien
• Repayment Frequency: Weekly

Which Loan Should You Choose?

There is a lot of overlap in regards to which loan can be used for which purpose, but some loans work better than others depending on how you’re going to use the funds.

Because short-term loans and lines of credit must be repaid in short order, they’re typically best for projects which will quickly produce a return on your investment or to bridge a cash flow gap until business picks up again. For example, you might use short-term loans or a line of credit for inventory purchasing, small marketing projects, or working capital needs.

Additionally, businesses might benefit from being able to draw from a line of credit without re-applying for capital every time they need more financing.

Conversely, if you want to invest in long-term business growth projects that may not pay off for a while, such as business expansion, you may want to seek out a loan with smaller payments and longer terms.

You Need At Least A Year In Business & $100K In Annual Revenue To Qualify

OnDeck wants to make sure that it gets its money (and interest) back. To do so, the company has requirements in place to ensure it’s lending to businesses with a positive history.

Along with requiring a year in business and $100K in annual revenue, you need a personal credit score of at least 600 and have at least five deposits going into your business checking account each month. OnDeck can work with most types of business but prohibits some high-risk industries.

Lending By Wave Can Be A Little Pricey

The short-term loans have effective annual percentage rates (APRs) that range from 11.9% – 99.4%. Although OnDeck’s short-term loans technically do not carry interest, this number goes to show that you may have to pay a fair amount of fees on your loan. For more information on calculating APRs for fixed-fee loans, I’d recommend checking out our article about calculating APRs on financing products with short term-lengths.

With APRs ranging from 11% – 57.9%, the rates for the lines of credit are a little cheaper but may still be higher than some small businesses would like.

Nonetheless, both the short-term loans and lines of credit carry fees that are competitive with (or better than) similar lenders, so you shouldn’t rule Lending by Wave out if you are looking for funding. However, if you have an especially creditworthy business, you may be able to find better rates elsewhere.

How Do You Know If You’re Getting A Good Deal?

Before you accept the loan, OnDeck lays out your potential terms in an easy-to-understand format called a SMART Box. The document will give you all the information necessary to understand and compare loan offers.

Along with standard metrics, such as your factor rate or interest rate, origination fee, and repayment cost, the SMART Box provides these metrics:

• The APR or effective APR
• The total cost of capital
• The cents-on-the-dollar cost (how much you’re paying in fees per dollar borrowed)
• The average monthly payment
• Penalties or discounts for prepayment

The SMART Box format varies by loan product, but you can see examples of what the box looks like for a short-term loan or line of credit on the ILPA (Innovative Lending Platform Association) website.

The Application & Funding Process Is Fast & Easy

Although the loans might be a little on the pricey side, these loans are very fast and easy to qualify for. You won’t have to write up a business plan, gather a bunch of financial documents, or jump through hoops that business loans carry a reputation for requiring.

Typically, potential borrowers can find out if they’re eligible for a loan within a few minutes and complete the full application within 48 hours.

OnDeck requires very few documents. As long as you have those documents on hand (or can gather them in a timely manner), the process will likely be quick and painless.

OnDeck Is Not The Only Lender That Integrates With Wave

If you like the appeal of staying within the Wave ecosystem, but don’t like the products OnDeck offers (or don’t qualify), you still have other options.

B2B businesses that process invoices may be interested in Fundbox, a fintech company that offers invoice financing services. This company integrates with Wave’s software, so if you need funds, you can request a loan at any time based on the value of one of your unpaid invoices if approved. For more information, read our full Fundbox review.

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Otherwise, Wave does not have specific partnerships with other lenders (to my knowledge). However, many of OnDeck’s competitors have similarly quick and easy online applications. Before deciding on a lender, you can make some comparisons to ensure you’re getting the best deal. Head over to our Small Business Loan review category to find other reputable lenders you may be eligible for.

Final Thoughts

Lending for Wave is a fast and easy way to access business financing if you’re eligible. Although businesses may still benefit from stepping outside of the Wave ecosystem to make a few comparisons, OnDeck offers flexible, useful, and relatively low-cost business loans.