Finimpact

Finimpact Ratings Methodology for Small Business Loans

Thomas J. Brock
Chartered Financial Analyst (CFA) and a Certified Public Accountant (CPA)

Somer G. Anderson, Accounting and Finance Professor Ph.D., CPA, CGMA, CFE

Here at finimpact.com, we strive to provide you timely, transparent, and relevant information on the various small business lenders, loan aggregators, and peer-to-peer solutions we cover. To this end, we’ve established a comprehensive rating system to quantitatively assess each of them.

It entailed researching each platform and categorizing loan offerings across the following four financing arrangements:

Our experts evaluated each platform based on the seven parameters listed below. All parameters were evaluated using a five-point scoring system

  • Excellent = 5
  • Good=4
  • Average=3
  • Subpar=2
  • Poor=1

The parameters are outlined below. The first three parameters reflect loan-type specificity; the latter four were rated at the platform level.

  • Loan Features: This parameter considers loan terms, repayment optionality, and loan limits. For each financing arrangement offered, each of these features was evaluated using the five-point scoring system. Then, the various scores were aggregated and averaged to establish an overall loan features score.
  • Interest Rates and Fees: This parameter considers borrowing/origination fees, prepayment fees, late payment fees, maintenance fees, and minimum/maximum interest rates. For each financing arrangement offered, each of these features was evaluated using the five-point scoring system. Then, the various scores were aggregated and averaged to establish an overall interest rates and fees score.
  • Qualification Leniency: This parameter considers minimum credit score, annual revenue, and business history requirements. For each financing arrangement offered, each of these features was evaluated using the five-point scoring system. Then, the various scores were aggregated and averaged to establish an overall qualification leniency score.
  • Application Process: This parameter considers the invasiveness of application information requirements, “hard-pull” credit score impact, application processing time/funding time for approved applications, and any distinctively competitive offerings. Collectively, these features were evaluated using the five-point scoring system.
  • Customer Support: This parameter considers a platform’s accessibility to a live CSR rep during standard hours, accessibility to a live CSR rep during extended hours, the degree of multi-channel support, and the availability of supplemental information and tools. Collectively, these features were evaluated using the five-point scoring system.
  • User Reviews: This parameter considers the scores achieved from independent user review sites, such as Trustpilot. Ideally, each platform’s rating reflects scores from three distinct user review sites. However, this isn’t always possible. Ultimately, the various scores were aggregated and averaged to establish an overall user reviews score.
  • Perks Bonus: This parameter gives each loan platform the opportunity to boost its overall score, if it satisfies specified service offering requirements across the following categories: flexibility, transparency, and technology. If a lender satisfies the requirements, it receives a 5-point score that is factored into its overall rating. If a lender does not meet the criteria, this parameter does not factor into the overall rating.

The overall score for each loan platform reflects an average of the underlying parameter scores (seven for Perks Bonus qualifiers and six for non-qualifiers). All of the parameters receive equal weighting. Finimpact believes this approach is optimal; however, if the environment evolves, we may look to weight some parameters more heavily than others.

Details By Loan Type

The criteria used to determine the scores for the seven parameters differ by loan type, which Finimpact's experts has grouped across the following categories: unsecured lines of credit and advances, standard secured loans, SBA loans and unsecured business loans. Below, we outline the parameter details for different types of loans.

Unsecured lines of credit and cash advances

A line of credit is a revolving loan facility that allows your business to borrow money up to a specified limit, with fairly flexible repayment specifications. This arrangement is very different than a traditional, installment-style loan. As a result, the Finimpact rating scheme for lines of credit is much different than those used for other types of loans. It is designed to accommodate the most prominent differences, which include the following:

  • Term lengths for lines of credit are generally shorter than other loans.
  • Loan amounts offered for lines of credit are generally lower than other loans.
  • Interest rates on lines of credit are generally higher than other loans.

A merchant cash advance is a way to borrow money based on your expected future sales. The advance, plus interest, is payable over a specified number of months. This arrangement is very different than a traditional, installment-style loan. As a result, the Finimpact rating scheme for merchant cash advances is much different than those used for other types of loans. It is designed to accommodate the most prominent differences, which include the following:

  • Term lengths for merchant cash advances are generally shorter than other loans. Loan amounts offered for merchant cash advances are generally lower than other loans.
  • Interest rates on merchant cash advances, which are commonly stated as factor rates, are generally higher than other loans.

The rating methodology for the seven parameters are outlined below

Loan Features

One star Two Stars Three Stars Four Stars Five Stars
Term Length 6 months or less Between 6 and 9 months Between 9 and 12 months Between 12 and 18 months Over 18 months
Repayment Period Daily Daily or weekly Some monthly options Monthly Highly flexible
Loan Amount Up to $250,000 Between $250,000 and $500,000 Between $500,000 and $750,000 Between $750,000 and $1,000,000 Over $1,000,000

Interest Rates and Fees

One star Two Stars Three Stars Four Stars Five Stars
Origination Fees Over 6% Between 4-6% Between 2-4% Between 0-2% None
Prepayment Fees Prepayment fees exist N/A N/A None None with discounts
Late Payment Fees 2.5% or more From 0% to 2.5% From $25 to $50 or unspecified Between $0 and $25 None
Maintenance Fees Over 1.5% Between 1% and 1.5% Between 0.5% to 1% Under 0.5% None
Interest Rates - Minimum Over 20% Between 15% and 20% Between 10% and 15% Between 5% and 10% Under 5%
Interest Rates - Maximum Over 35% Between 30% and 35% Between 25% and 30% Between 20% and 25% Under 20%

Qualification Leniency

One star Two Stars Three Stars Four Stars Five Stars
Minimum Credit Score 700 or higher Between 650 and 699 Between 600 and 649 Between 550 and 599 550 or lower
Minimum Annual Revenue $150,001 and over $125,001 to $150,000 $100,001 to $125,000 $75,001 to $100,000 $75,000 and under
Minimum Time in Business Over 24 months Between 18 and 24 months Between 12 and 18 months Between 6 and 12 months Under 6 months

Application Process

Default score Subtraction of one star (-1 star) Addition of one star (+1 star)
Informational Requirements 3 stars Overly Invasive Informational Requirements N/A
Hard/Soft Credit Pull 3 stars Hard-pull N/A
Turnaround Time 3 stars N/A Between 24 and 72 hours
Distinctively competitive offerings 3 stars N/A Exist

Customer Support

Access to Live Chat Customer Service Rep +1 star
Standard Call Center Support 9 - 6 EST +1 star
Expended Call Center Support +1 star
Multi-channel Support +1 star
Supplemental Support +1 star

User Reviews

Parameter reflects the scores achieved from independent user review sites such as Trustpilot.com

Perks Bonus

This is a bonus parameter that gives a loan platform the opportunity to boost its score, if it satisfies specified service offering requirements across the following categories: flexibility, transparency, and technology.

Specifically, if a lender satisfies at least one of the “flexibility” items listed below, both of the “transparency” items, and at least one of the “technology” items, a 5-point bonus score is awarded. If a lender does not meet the criteria, this parameter does not factor into the overall rating.

Flexibility: Offers rewards and/or discounts (aside from prepayment discounts, which are incorporated in the “Interest Rates & Fees” parameter) Allows for payment deferral or payment skipping optionality during times of hardship Allows for modification of loan terms

Transparency: Maintains a professional website that is informative, intuitive, and free of misleading advertising and sales gimmicks Has no history of complaints from customers regarding poor sales practices

Technology: Offers the ability to pay online Offers autopay optionality Provides mobile functionality

Standard secured loans

Includes secured business loans, business startup loans, equipment financing loans, short-term business loans.

The rating methodology for the seven parameters of standard secured loans is outlined below

Loan Features

One star Two Stars Three Stars Four Stars Five Stars
Term Length 1 year or less Between 1 and 2 years Between 2 and 5 years Between 5 and 10 years Over 10 years
Repayment Period Daily Daily or weekly Some monthly options Monthly Highly flexible
Loan Amount Up to $250,000 Between $250,000 and $500,000 Between $500,000 and $750,000 Between $750,000 and $1,000,000 Over $1,000,000

Interest Rates and Fees

One star Two Stars Three Stars Four Stars Five Stars
Origination Fees Over 6% Between 4-6% Between 2-4% Between 0-2% None
Prepayment Fees Prepayment fees exist N/A N/A None None with discounts
Late Payment Fees 2.5% or more From 0% to 2.5% From $25 to $50 or unspecified Between $0 and $25 None
Maintenance Fees Over 1.5% Between 1% and 1.5% Between 0.5% to 1% Under 0.5% None
Interest Rates - Minimum Over 16% Between 12% and 16% Between 8% and 12% Between 4% and 8% Under 4%
Interest Rates - Maximum Over 35% Between 30% and 35% Between 25% and 30% Between 20% and 25% Under 20%

Qualification Leniency

One star Two Stars Three Stars Four Stars Five Stars
Minimum Credit Score 700 or higher Between 650 and 699 Between 600 and 649 Between 550 and 599 550 or lower
Minimum Annual Revenue $150,001 and over $125,001 to $150,000 $100,001 to $125,000 $75,001 to $100,000 $75,000 and under
Minimum Time in Business Over 24 months Between 18 and 24 months Between 12 and 18 months Between 6 and 12 months Under 6 months

Application Process

Default score Subtraction of one star (-1 star) Addition of one star (+1 star)
Informational Requirements 3 stars Overly Invasive Informational Requirements N/A
Hard/Soft Credit Pull 3 stars Hard-pull N/A
Turnaround Time 3 stars N/A Between 24 and 72 hours
Distinctively competitive offerings 3 stars N/A Exist

Customer Support

Access to Live Chat Customer Service Rep +1 star
Standard Call Center Support 9 - 6 EST +1 star
Expended Call Center Support +1 star
Multi-channel Support +1 star
Supplemental Support +1 star

User Reviews

Parameter reflects the scores achieved from independent user review sites such as Trustpilot.com

Perks Bonus

This is a bonus parameter that gives a loan platform the opportunity to boost its score, if it satisfies specified service offering requirements across the following categories: flexibility, transparency, and technology.

Specifically, if a lender satisfies at least one of the “flexibility” items listed below, both of the “transparency” items, and at least one of the “technology” items, a 5-point bonus score is awarded. If a lender does not meet the criteria, this parameter does not factor into the overall rating.

  • Flexibility: Offers rewards and/or discounts (aside from prepayment discounts, which are incorporated in the “Interest Rates & Fees” parameter) Allows for payment deferral or payment skipping optionality during times of hardship Allows for modification of loan terms
  • Transparency: Maintains a professional website that is informative, intuitive, and free of misleading advertising and sales gimmicks Has no history of complaints from customers regarding poor sales practices
  • Technology: Offers the ability to pay online Offers autopay optionality Provides mobile functionality

Small Business Administration (SBA) loans

A small business administration loan is a financing arrangement designed by the U.S. Small Business Administration (SBA) to facilitate domestic small business growth. SBA loans aren’t issued by the SBA. Rather, they are partially guaranteed by the organization to encourage authorized lenders to extend financing. The supportive nature of the program enables small businesses to obtain loans that are otherwise unattainable – with relatively advantageous terms.

Given the involvement of the U.S. government, the terms on SBA loans are generally the same from one lender to the next. That said, high-volume lenders with an elevated level of recognition from the SBA are superior to inexperienced lenders.

The Finimpact scoring criteria for the seven parameters are outlined below.

Loan Features

One star Two Stars Three Stars Four Stars Five Stars
Term Length 10 year or less Between 10 and 15 years Between 15 and 20 years Between 20 and 25 years Over 25 years
Repayment Period Daily Daily or weekly Some monthly options Monthly Highly flexible
Loan Amount Up to $1,000,000 Between $1,000,000 and $4,000,000 Between $4,000,000 and $7,000,000 Between $7,000,000 and $10,000,000 Over $10,000,000

Interest Rates and Fees

One star Two Stars Three Stars Four Stars Five Stars
Origination Fees Over 6% Between 4%-6% Between 2%-4% Between 0%-2% None
Prepayment Fees Prepayment fees exist N/A N/A None None with discounts
Late Payment Fees 2.5% or more From 0% to 2.5% From $25 to $50 or unspecified Between $0 and $25 None
Maintenance Fees Over 1.5% Between 1% and 1.5% Between 0.5% to 1% Under 0.5% None
Interest Rates - Minimum Over 12% Between 9% and 12% Between 6% and 9% Between 3% and 6% Under 3%
Interest Rates - Maximum Over 25% Between 20% and 25% Between 15% and 20% Between 10% and 15% Under 10%

Qualification Leniency

One star Two Stars Three Stars Four Stars Five Stars
Minimum Credit Score 700 or higher Between 650 and 699 Between 600 and 649 Between 550 and 599 550 or lower
Minimum Annual Revenue $150,001 and over $125,001 to $150,000 $100,001 to $125,000 $75,001 to $100,000 $75,000 and under
Minimum Time in Business Over 24 months Between 18 and 24 months Between 12 and 18 months Between 6 and 12 months Under 6 months

Application Process

Default score Subtraction of one star (-1 star) Addition of one star (+1 star)
Informational Requirements 3 stars Overly Invasive Informational Requirements N/A
Hard/Soft Credit Pull 3 stars Hard-pull N/A
Turnaround Time 3 stars N/A Between 24 and 72 hours
Distinctively competitive offerings 3 stars N/A Exist

Customer Support

Access to Live Chat Customer Service Rep +1 star
Standard Call Center Support 9 - 6 EST +1 star
Expended Call Center Support +1 star
Multi-channel Support +1 star
Supplemental Support +1 star

User Reviews

Parameter reflects the scores achieved from independent user review sites such as Trustpilot.com

Perks Bonus

This is a bonus parameter that gives a loan platform the opportunity to boost its score, if it satisfies specified service offering requirements across the following categories: flexibility, transparency, and technology.

Specifically, if a lender satisfies at least one of the “flexibility” items listed below, both of the “transparency” items, and at least one of the “technology” items, a 5-point bonus score is awarded. If a lender does not meet the criteria, this parameter does not factor into the overall rating.

  • Flexibility: Offers rewards and/or discounts (aside from prepayment discounts, which are incorporated in the “Interest Rates & Fees” parameter) Allows for payment deferral or payment skipping optionality during times of hardship Allows for modification of loan terms
  • Transparency: Maintains a professional website that is informative, intuitive, and free of misleading advertising and sales gimmicks Has no history of complaints from customers regarding poor sales practices
  • Technology: Offers the ability to pay online Offers autopay optionality Provides mobile functionality

Unsecured Business Loans

Unlike a secured business loan, an unsecured loan is a financing arrangement that does not entail a pledge of collateral, such as real estate, business equipment or inventory. The distinction is important, because unsecured loans are more risky for lenders. As a result, the BSBL rating scheme for an unsecured loan is much different than that used for a secured loan. It is designed to accommodate the most prominent differences, which include the following:

  • Term lengths for unsecured loans are generally shorter than secured loans.
  • Loan amounts offered for unsecured loans are generally lower than secured loans.
  • Interest rates on unsecured loans are generally higher than secured loans.

The Finimpact scoring criteria for the seven parameters are outlined below.

Loan Features

One star Two Stars Three Stars Four Stars Five Stars
Term Length 1 year or less Between 1 and 2 years Between 2 and 3 years Between 3 and 5 years Over 5 years
Repayment Period Daily Daily or weekly Some monthly options Monthly Highly flexible
Loan Amount Up to $50,000 Between $50,000 and $200,000 Between $200,000 and $350,000 Between $350,000 and $500,000 Over $50,000

Interest Rates and Fees

One star Two Stars Three Stars Four Stars Five Stars
Origination Fees Over 6% Between 4%-6% Between 2%-4% Between 0%-2% None
Prepayment Fees Prepayment fees exist N/A N/A None None with discounts
Late Payment Fees 2.5% or more From 0% to 2.5% From $25 to $50 or unspecified Between $0 and $25 None
Maintenance Fees Over 1.5% Between 1% and 1.5% Between 0.5% to 1% Under 0.5% None
Interest Rates - Minimum Over 12% Between 9% and 12% Between 6% and 9% Between 3% and 6% Under 3%
Interest Rates - Maximum Over 25% Between 20% and 25% Between 15% and 20% Between 10% and 15% Under 10%

Qualification Leniency

One star Two Stars Three Stars Four Stars Five Stars
Minimum Credit Score 700 or higher Between 650 and 699 Between 600 and 649 Between 550 and 599 550 or lower
Minimum Annual Revenue $150,001 and over $125,001 to $150,000 $100,001 to $125,000 $75,001 to $100,000 $75,000 and under
Minimum Time in Business Over 24 months Between 18 and 24 months Between 12 and 18 months Between 6 and 12 months Under 6 months

Application Process

Default score Subtraction of one star (-1 star) Addition of one star (+1 star)
Informational Requirements 3 stars Overly Invasive Informational Requirements N/A
Hard/Soft Credit Pull 3 stars Hard-pull N/A
Turnaround Time 3 stars N/A Between 24 and 72 hours
Distinctively competitive offerings 3 stars N/A Exist

Customer Support

Access to Live Chat Customer Service Rep +1 star
Standard Call Center Support 9 - 6 EST +1 star
Expended Call Center Support +1 star
Multi-channel Support +1 star
Supplemental Support +1 star

User Reviews

Parameter reflects the scores achieved from independent user review sites such as Trustpilot.com

Perks Bonus

This is a bonus parameter that gives a loan platform the opportunity to boost its score, if it satisfies specified service offering requirements across the following categories: flexibility, transparency, and technology.

Specifically, if a lender satisfies at least one of the “flexibility” items listed below, both of the “transparency” items, and at least one of the “technology” items, a 5-point bonus score is awarded. If a lender does not meet the criteria, this parameter does not factor into the overall rating.

  • Flexibility: Offers rewards and/or discounts (aside from prepayment discounts, which are incorporated in the “Interest Rates & Fees” parameter) Allows for payment deferral or payment skipping optionality during times of hardship Allows for modification of loan terms
  • Transparency: Maintains a professional website that is informative, intuitive, and free of misleading advertising and sales gimmicks Has no history of complaints from customers regarding poor sales practices
  • Technology: Offers the ability to pay online Offers autopay optionality Provides mobile functionality