IOU Financial Review: Explore Funding & Business Loan Options

Pros

• Borrower qualifications are lower than what banks offer
• High borrowing amounts
• Financing is suitable for quick business financing
• The application process is fast and easy
• Website advertising is clear and informative

Cons

• Rates can be expensive
• Some additional fees are charged
• Frequent repayments are required
• No long-term financing options available

IOU Financial Overview

IOU Financial is a short-term lender serving small, profitable businesses. As a short-term lender, IOU’s processes are quick, its credit criteria lenient, and its rates expensive.

We like to caution prospective customers of these types of companies to go in well-armed with information. Most short-term funders are above-board, but the terms they offer can be quite punishing for the unprepared. Take full stock of your options with our short-term funding comparison chart before you commit to anything.

As for IOU, in particular, the company seems pretty decent as short-term online funders go. It offers a lot of information on its site and is mostly transparent about its process. Perhaps most importantly, its rates aren’t completely off the charts. Be prepared, however, for some additional fees.

Loan Services Offered By IOU Financial

IOU Financial offers short-term loans. With short-term loans, the borrower is given a lump sum and must immediately begin paying back the loan plus a flat fee as daily or weekly installments. They typically have term lengths lasting less than a year, and almost all have term lengths under two years.

Rather than end-users, IOU is currently marketing its lending services mostly to resellers that want to provide business financing for their small business clients. If you are a small business owner interested in obtaining an IOU loan for your business, IOU may instead refer you to one of its partnered lenders.

IOU Financial Borrower Requirements

To qualify for an IOU Financial loan, 80% of your company’s ownership will need to sign personal guarantees.

For example, if there are three owners, each owning 33% of the company, all three owners would have to sign. On the other hand, if there were five owners with a 20% stake each, only four would have to sign. You’ll also need to have made ten or more deposits per month into your business bank account.

Additionally, you must meet these prerequisites:

IOU Financial Interest Rates & Fees

IOU’s website errs on the side of transparency, which is always welcome when comparing financial products. Here’s what its terms look like:

You’ll be able to derive most of the information above from IOU’s website. Short-term loans such as those offered by IOU use a different system than what you might be used to. The loans use a combination of fixed fees and simple interest to calculate your payment. You can save on the latter by paying off your loan early, although you’ll still owe the fixed payment costs of your loan.

IOU reduces the fixed fees if you agree to a shorter term. This has the effect of keeping IOU’s effective APRs within a narrow (and fairly reasonable) band relative to other short-term funders, where triple-digit APRs aren’t unheard of.

Regarding repayments, you’ll be making a fixed debit via an automated clearing house (ACH). These can be scheduled daily, weekly, or bi-weekly. Be aware that the daily schedule can be pretty punishing for the unprepared. IOU offers a bit more flexibility for its $70,000+ and $85,000+ loan tiers, allowing borrowers to make weekly or bi-weekly payments instead.

IOU is unusually transparent in the sense that it also reveals most of the costs you’ll encounter, including its fees. Unfortunately, these fees are substantial. IOU charges:

• An origination fee (see the table above). However, unlike most of its competitors, IOU does not deduct this fee from the amount of money you receive from the company. Instead, it’s built into your payback amount.
• A $595 administration fee.
• A loan guarantee fee.
• Additional administrative and post-servicing fees for such things as paying by check or modifying the loan; most of these are avoidable.

All IOU products are unsecured loans, so you won’t be putting up collateral in the traditional sense, but you do have to sign a personal guarantee. If you currently have a loan with IOU, you can renew your loan if you have paid at least 40% of your existing loan.

IOU Loan Application Process

Since IOU deals mainly with resellers, your application experience may vary depending on the reseller’s internal processes. The company advertises a turnaround time as low as 24 hours, but 48 hours is more typical.

If you want the process to go as quickly as possible, you’ll want to have the following documents on hand when you submit:

• Three months of bank statements (six to 12-month loans)
• Six months of bank statements and full tax returns (15-18 month loans)
• Voided checks
• Drivers license

Note that IOU will do a soft pull on your credit.

IOU Financial does not currently have a loan application on its website. It looks like IOU is currently directing new applicants to work with one of its preferred lenders, and there is a brief form on the website for small businesses that are interested in receiving funding from one of IOU’s partners. As mentioned, IOU is mostly gearing its lending services toward companies that want to offer IOU funding to its small business clients. You can find an application to become a partner on IOU Financial’s website.

Sales & Advertising Transparency

IOU does a pretty good job of disclosing the terms of its loans, going so far as to break down at least some of its fees. Just be aware that you may have to click around a bit to find all of the information you want.

The site’s resource page isn’t quite as useful, but if you’re willing to take a critical eye to some of the posts and guides that double as advertising, you can glean some helpful information from them.

Customer Service & Technical Support

The IOU staff seems to be hit or miss with regard to knowledgeability. The reps manning the chat messenger weren’t able to answer too many questions. One gave me a number to call, but I wasn’t able to connect with the individual I was referred to. Most clients seem satisfied with the company’s customer support, however.

IOU Financial Reviews, Complaints, & Testimonials

Customer reviews of financial companies tend to be polarized: People are either very happy with the experience or find it near intolerable. The same is generally true for IOU Financial reviews, though there seem to be more positive than negative reviews.  IOU is accredited with the Better Business Bureau, where it maintains an A+ rating. There are two customer reviews on the site, and both are positive. On Trustpilot, where user reviews tend to trend positive, IOU rates a 4.7/5, with a total of 596 reviews.

Negative Reviews & Complaints

Critiques include:

• Unexpected Credit Check: One customer complained that their credit was checked unexpectedly.
• Expensive: Expect to pay a premium for short-term funding, a trait not unique to IOU.
• Aggressive Sales Tactics: A number of complaints to the Better Business Bureau describe aggressive sales tactics.
• Unclear Terms: Some customers say they were caught off guard by changes to their account, which could result in complications, such as late charges.

Positive Reviews & Testimonials

Most customers seem to have had a satisfactory experience with IOU.

• Professional: Users reported that you can expect IOU staff to do what they say they will within a reasonable amount of time.
• Fast: If you need money quickly, it’s hard to argue against the allure of 24-hour (hopefully) funding.
• Semi-Reasonable Rates: Expensive though IOU is, its rates take into account faster payoffs, so they more closely resemble the logic of a traditional loan. They’re also subject to state caps on loans, which keeps the maximum factor rates somewhat in check.

Final Verdict: Is IOU Funding Right For Your Business?

IOU Financial is one of the more transparent alternative lenders out there, offering decent rates overall. The high origination fee and supplemental fees can stack up, though, so make sure you’ve accounted for the full cost of borrowing before you agree to anything. With relatively higher borrowing criteria, there’s a strong possibility that anyone who qualifies for IOU may qualify for a better deal elsewhere. Also, IOU Financial is not currently advertising its lending products directly to small businesses and may refer interested borrowers to a partnered lender instead.

Didn’t find what you were looking for? Here are some of our favorite providers of merchant cash advances and small business loans.

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