- Suited for startups
- Relaxed borrower qualifications
- Competitive terms and fees
- Easy application process
- Only available in six states
- Typical time to funding: 1 – 4 weeks
- Unsuited for large businesses
Any business owner can tell you that starting a business isn’t easy. Unless you’re independently wealthy, there comes a point when you just need more money. In situations like these, your first stop is usually your friends and relatives. Oddly enough, asking the people closest to you for an interest-free loan of indeterminate length isn’t always an easy thing to do. So how about instead of money, you ask to borrow their creditworthiness to get a loan with a lower interest rate?
This is the idea behind Backed, a New York-based lender. Founded about two years ago, Backed is a personal lender, but their loans can be used to start a business. As such, your creditworthiness is based on your personal creditworthiness—not the creditworthiness of your business.
As you’d expect, Backed was conceptualized as a way for younger people, or any person with a thin or non-existent credit history, to get loans with reasonable rates. If you don’t have a very good personal credit score, you can ask somebody else who does to back your loan. They lend their creditworthiness, and you get better rates on your loan.
Backers are still responsible for repaying the loan should you run into financial difficulty. However, unlike co-signers, if you miss a payment, backers are given two weeks notification to help you rectify the situation.
This company is hoping you’ll never get to the point of delinquency, though. Backed, along with other lenders like StreetShares, Able, and Kiva U.S., is part of a growing movement among lenders. They operate under the assumption that you’ll repay your loan because normal people are involved in the process. You might not feel particularly excited about paying some New York bigwig back, but you’re darned well going to do everything you can to pay if your dear old mom and pop’s financials are on the line.
Another benefit? Because they have backers, Backed is able to offer lower interest rates. While most personal lenders carry APRs somewhere between 6% and 36%, Backed’s APRs range from 2.9% – 15.99%. That’s significantly lower than other alternatives, and is reason enough for you to consider this lender if you’re eligible.
Don’t get ready to apply quite yet, though; at this time, Backed only operates in six states: New York, New Jersey, Arkansas, West Virginia, Florida, and Arizona. If you’re not currently in Backed’s field of operation, or you don’t think this lender is quite right for you, head down to the Final Verdict section for some alternative lender suggestions.
However, if you are in one of the above states and you’re looking for a personal loan, Backed is definitely worth including in your comparisons. Read on for the details!
Table of Contents
Backed offers personal loans that can be used for business purposes.
These are the qualifications for getting a Backed loan, but the first three can be waived if you get an eligible backer:
|Credit score:||Minimum of 660|
|Credit history:||Minimum of 6 months|
|Personal revenue:||Minimum of $18K annually|
A backer with:
|Credit score:||Minimum 720|
|Personal revenue:||Minimum $50K annually|
Because Backed offers personal loans, they aren’t interested in evaluating the strength of your business. All they require is a credit score of at least 660 with six months of credit history and a personal revenue of at least $18K annually. However, these requirements can be waived if you have a backer.
Backers need to have a minimum credit score of 720 and a personal revenue of at least $50K annually. Anybody can get a backer to improve their interest rate, even if they meet the personal requirements.
In addition, Backed only currently lends to borrowers in New York, New Jersey, Arkansas, West Virginia, Florida, and Arizona.
Terms & Fees
Here are the terms and fees published on the Backed website:
|Borrowing amount:||$3K – $25K|
|Term length:||1 – 3 years|
|Interest rate:||2.24% – 14.54%|
|Origination fee:||0.8% – 2%|
|APR range:||2.9% – 15.99%|
Backed categorizes your loan by grades. The stronger your application, the better your grade. You won’t know your grade when you apply for their service, but here’s a chart that illustrates how your interest rate interacts with your origination fee and APR:
(screenshot taken on 12/12/2016 via this page)
As usual, should you choose to accept the loan offer, Backed will charge an origination fee and periodic interest. Other than a few potential fees, you will not be charged for anything else. For example, Backed does not have an application fee, processing fee, prepayment penalty, or maintenance fee.
Potential fees include a $10 fee for processing checks, and a $15 NSF fee. This lender has a 15 day grace period if you’re late making a payment, but afterward there will be another $20 fee.
Backed has a very thorough rundown of their application process on their website. Their process is fairly standard.
First, you have to be pre-approved—a word which here means that Backed is making sure you’re eligible for a loan. You will have to provide personal information such as your education, employment status, housing status, social security number, and why you want the loan.
Backed will use the social security number to do a soft credit check (which will not impact your credit score) and make a preliminary decision regarding whether or not they can lend to you. Assuming you are eligible, Backed will provide an initial quote which will detail the interest rate and origination fee they can provide you. Because your information is unverified at this stage, and you have not yet submitted any backers, this quote may change.
To continue on the process, you’ll have to submit official documentation that verifies all the information you’ve already told Backed. They’ll ask for these documents:
- A color copy of photo ID
- Your last 3 pay stubs, or your most current tax return and two most recent bank statements
- Read-only access to various online accounts to verify personal and financial information
- A recent utility bill to verify home address
You will also have to verify your email address and bank account. You can also lower your origination fee by 20% if you provide read-only access to certain accounts like your Facebook, LinkedIn, and Plaid accounts. The company will run a hard credit check at this point, which will affect your credit score.
To improve the strength of your application, you can also add a backer. You have the option of submitting multiple backers, but Backed will choose the strongest one. Because your loan is less risky, having a backer will lower your interest rate.
The time from application to funding can take anywhere from three to 30 days, largely depending upon how long it takes you to gather information and backers. Before you accept the loan, you’ll have a final chance to review the offer. If you choose to accept, the funds will be wired into your bank account within one or two business days.
Sales & Advertising Transparency
I was very happy to see that Backed provided so much information about their loans. They provide all the information you need to know before deciding whether or not to apply for a loan. I was especially impressed with the pages explaining their terms and fees, and their application process.
The only information that I couldn’t find on the website were a few technical details, like who qualified to be a backer. Otherwise, you’ll be able to find all the information you need before making a decision regarding whether or not to apply for a loan.
Customer Service & Technical Support
Backed customer service is currently only available by email. As there are very few reviews of this company on the web, I was not able to come up a general consensus regarding the quality of Backed’s customer service. That said, all my interactions with the company have been positive, and my emails were responded to quickly.
Negative Reviews & Complaints
Backed has very few customer reviews online. The lender has a profile on Credit Karma, but does not have any reviews logged. Otherwise, Backed does not have a presence on other review sites such as the Better Business Bureau.
Naturally, at this point, the biggest problem with their service is that Backed has a limited reach. Currently, they are only capable of lending to New York, New Jersey, Arkansas, West Virginia, Florida, and Arizona, though they are working on expanding to other states.
In anticipation of what I’ve observed from other lenders, some people are going to be unhappy about the origination fee. This is a common practice—I see very few lenders that don’t charge this fee. Furthermore, Backed’s is lower than most lenders; for comparison, while Backed charges 0.8% – 2%, most lenders generally charge somewhere between 2% and 6% of the principal.
Positive Reviews & Testimonials
The few customer reviews of Backed online like that these loans are startup friendly, with a fast application process and reasonable rates.
But two reviews aren’t very much to go on. Do you have any experience with this lender? Leave a message in the comments! We’d love to hear what you think.
Startups have the most difficult time getting financing, so it makes sense to get a loan based on your personal merits if you can’t get one yet based on your business merits. Backed takes this one step further: if you can’t get a loan based on your own personal merits, use somebody else’s instead!
If you have people who want to (or, at least, are willing to) support your fledgling business, but can’t do so financially, Backed is a great way for one of your friends, relatives, or colleagues to lend a hand.
Although this lender is very new, I’m impressed with what I’ve seen so far. If you’re eligible, Backed is definitely worth including in your comparisons.
Don’t live in one of the states Backed operates in, or don’t think Backed is right for you? You’ve got some other options. Check out our full list of startup business loans to see what else you might be eligible for!