Getting a loan just got harder for some small businesses

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(This post originally appeared on The Washington Post)

Online lenders have become a great source of alternative capital for small business over the last few years. Fortune reported recently that online lending start-ups have raised a total of $12.6 billion across 463 deals since 2011, with investments peaking at $5.2 billion in 2015.  But this source of capital can be not only expensive (some online lenders reportedly charge anywhere from 30-50 percent annual interest rates) but things are hitting a wall.

This week, investors were hoping that one of the best-known online firms for matching  lenders and borrowers, Lending Club, would shake off its recent struggles (which include an ongoing investigation by the Justice Department and the departure of its CEO) and demonstrate that it is turning around the business.  Unfortunately, that wasn’t to be.  Reuters reported the company posted its largest quarterly loss in a year and experienced “steep drop” in loan originations.

Meanwhile Prosper, another popular online lender to small businesses, seems to be tightening its lending. Crowdfunding Insider reports that Prosper’s delinquencies this year are below last year’s levels. Why? After implementing policy changes, the company tells investors it is attracting “better quality borrowers.” Translation: More requirements to get a loan.

Small businesses and start-ups with little credit history continue to face difficulties getting loans from traditional banks. Venture capital investments are on the decline. However, online lenders like Lending Club and Prosper have been viable options for capital. It will be worth watching what happens.

In the meantime, here’s a piece of good news for those looking for money.

If you run a restaurant, you’ve got a new source of capital. Square Capital announced that it would begin lending money to non-Square customers through a partnership with Upserve, a restaurant management system. Upserve’s more than 7,000 customers will now be able to obtain this financing with payment made through a fixed percentage of their daily sales, just like Square does for its own customers.

Because Square will use data from Upserve’s system, the company expects to keep a close eye on its loans and default rates low.

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