According to the Institute for Local Self-Reliance, since 2000, large business lending volume has grown 36% while small business lending volume has fallen 14% and micro business loans under $100,000 have reduced 33%. Further research reveals that the reduction was not on account of lack of demand, but more on account of the absence of supply as small businesses have found it harder to get approved for loans.
New York-based OnDeck was founded in 2007 by Mitch Jacobs to address this issue. Their technology platform successfully leverages digital information including online banking and merchant processing data to ascertain the creditworthiness of small businesses. They are able to evaluate businesses based on their performance instead of relying on the business owner’s personal credit history. Their digital presence has reduced the time it takes to approve or reject loans so that businesses can focus on operations instead. Additionally, OnDeck lets borrowers repay loans more frequently, even daily if the borrower wants.
The company funds the loans it provides to business through credit facilities that they have in place with banks such as Deutsche Bank, Goldman Sachs Group Inc, KeyCorp, and US commercial lender BBVA Compass.
You can gauge their success from these statistics. Since inception, they have provided more than $1.5 billion in capital to more than 25,000 businesses across 700 industries and over 50 states. Their loan amounts range from $5,000-$250,000 and include forms such as merchant cash advances, unsecured business financing, and working capital financing among others.
Like any other lender, OnDeck charges an interest fee that ranges from $0.17 per dollar for a six-month loan to $0.33 per dollar for an 18-month loan. Additionally, they charge a 2.5% loan origination fee. For larger businesses, they also offer special 12- to 24-month loans that cost an origination fee of 2.5% and an APR of 19.99%-39.99% based on business performance. The company has faced severe criticism from analysts who claim that they charge high interest rates and base the creditworthiness of their customers on metrics such as Yelp reviews.
Reports reveal that OnDeck saw revenues grow 165% over the year to $64.5 million for the six months ended June 2014. Over the same period, OnDeck saw its losses increase from $13.7 million to $14.4 million. But they expect to be “profitable in the near future”.
Till date, OnDeck has received $180 million in funding from investors including Tiger Global Management, Institutional Venture Partners, Industry Ventures, Peter Thiel, Google Ventures, Keybank, Deutsche Bank, Square 1 Bank, RRE Ventures, First Round, Sapphire Ventures, Fortress Investment Group, Goldman Sachs, SF Capital, Village Ventures, Khosla Ventures, and Contour Venture Partners. Their last round of funding was held in March this year when they raised $77 million at an undisclosed valuation.
Earlier this month, OnDeck filed to go public under the JOBS Act which lets companies with less than $1 billion in revenues keep their filing confidential. OnDeck plans to raise $150 million through the IPO which is estimated to value them at $1.5 billion.