IOU Financial, a Canadian company previously branded in the U.S. as IOU Central and still operating under that legal name, has been operating as a lender since 2009. IOU Financial, which provides working capital loans to small businesses, combines transparent fees, a willingness to work with small business owners with moderate credit scores and a fast approval process. The company’s main drawbacks are high rates and fees.
Consider IOU Financial if you:
- Need up to $500,000 in financing
- Have been in business at least 1 year
- Generate at least $100,000 in annual revenue
- Don’t qualify for traditional financing options with lower rates
- Need funding quickly
IOU Financial Small Business Loans
IOU Financial offers two types of small business loans: core loans and midmarket loans.
Core small business loans feature:
- Amounts from $10,000 to $500,000
- Terms of 6, 9 and 12 months
- Fixed payments rates based on a multiplier or percentage of your loan amount (factor rates)
- Fixed daily payments
- $25 penalties for nonsufficient funds on daily payments
- Origination fees of 8.8% for new loans and 7.8% for renewals
- Guarantee fees varying with risk assessment
- A $395 administrative fees
- No early payment penalties
- Eligibility for loan renewal once 40% of your loan is repaid
IOU Financial’s midmarket loans differ from its core loans in a few major respects:
- Amounts from $70,000 to $300,000
- >12-, 15- and 18-month terms
- Fixed daily and weekly repayments
The company’s loan products use what are called factor rates instead of interest rates. In contrast to payments based on interest rates, which can vary with the amount of principal still owed, factor rates are fixed based on a multiplier or percentage of your loan. For instance, a factor rate of 1.15 means you pay back an additional 15% on top of what you borrowed.
While IOU Financial doesn’t directly state its rates on its site, it provides a loan calculator that illustrates sample rates when you select your loan amount and term. For instance, selecting a core loan of $50,000 with a 12-month term yields 252 daily payments of $253 to $263, for a total repayment of $63,634 to $66,384. This translates into a factor rate of about 1.27 to 1.33, or 27% to 33% repaid on top of the amount borrowed. Two third-party reviewers say IOU Financial’s factor rates range from 1.15 to 1.31, or 15% to 31%.
IOU Financial Lending Experience
The IOU application process begins with an online signup form. Alternatively, you can apply over the telephone. The form asks you to provide basic personal information, including email and phone contact information. According to the homepage of IOU Financial’s website, the preapproval application process takes 3 minutes to complete the form and seconds to get preapproved.
If you prequalify, IOU Financial will then ask for verifying documentation to continue the application process. The lender will do a “soft pull” on your credit to check your credit score, which won’t appear on your credit report and won’t affect your credit.
If you get approved, funds normally become available within 24 to 48 hours. After you receive the funds, IOU will begin daily or weekly automatic payment withdrawals, which will continue until your loan is repaid.
IOU Financial Pros
- Transparent rates and fees
- Loan renewal options
- No early prepayment penalties
- Easy application process
- Willingness to consider borrowers with moderate credit scores provided they generate sufficient income
IOU Financial Cons
- High rates compared to traditional lenders
- High origination fees
- Additional fees
IOU Financial Requirements
To qualify for an IOU Financial loan, you must meet a number of minimum requirements:
- Own at least 80% of your business, or 50% if jointly owned with your spouse
- Must own or have purchased a business in operation for at least 1 year
- Your company must make at least 10 monthly deposits into your business bank account
- Annual revenue of at least $100,000, with an average ending balance of $3,000 a day in your business bank account
IOU’s website doesn’t list a minimum credit score requirement, but it does mention that a soft pull will be done on your credit (meaning your credit score is considered but isn’t the only factor determining your eligibility). Two third-party reviewers report that IOU requires a minimum credit score of 600.
IOU Financial Application: What You Need to Apply
IOU Financial’s site doesn’t specify what documentation you need to apply for a loan. Two third-party reviewers report that you need:
- 3 months of bank statements for core loans with 6- to 12-month terms
- 6 months of statements plus tax returns for midmarket loans with 12- to 18-month terms
- A voided business check
- A copy of your driver’s license
Final Say: IOU Financial Review
IOU Financial provides more transparency than many lenders, along with relaxed credit requirements, an easy application process and fast approval. The lender is a viable option for small business owners who can’t qualify for conventional loans or who need cash quickly.
However, IOU Financial’s rates and fees can be relatively high compared to typical lenders, so be sure to compare your options before settling on an offer.
