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Another Sign Your Next Small Business Loan Won’t Come From a Bank

By Patrick Clark – January 23, 2014

Here’s more evidence of the growing market for alternative small business loans: OnDeck, an online lender that makes term loans up to $250,000, generated $65 million in revenue in 2013, Chief Executive Officer Noah Breslow said yesterday. He noted that’s up two and a half times from the year before. The increase comes after a report earlier this year estimating that nonbank lenders including OnDeck loaned about $3 billion to small business owners in 2013.

In a press release today, OnDeck said it received four times as many loan requests from residential construction contractors in 2013 compared with the year before, echoing research from Experian (EXPN:LN) and Moody’s Analytics (MCO) that’s highlighted a connection between rebounding housing markets and small business growth.

And in yesterday’s interview, Breslow said OnDeck has ambitions of “moving up market,” which may mean teaming with traditional banks to offer better interest rates to customers who previously considered OnDeck “either too expensive or not long-term enough.” (OnDeck’s average rates are 15 percent of the total loan amount, which would come to an annualized 30 percent on a six-month loan, far higher than what banks typically charge.)

Breslow wouldn’t reveal the company’s 2013 loan volumes, but here’s some rough math. Today’s press release said OnDeck has loaned $825 million since 2007. Last year it said it lent small businesses $350 million through 2012. That would put last year’s loan volume at $475 million.

A few other tidbits for close watchers of alternative lending to small businesses: Breslow said the revenue number follows generally accepted accounting principles (GAAP) and includes income from interest and fees, and subtracts certain costs, such as referral fees OnDeck pays on some loans. When we spoke yesterday, Breslow was in Las Vegas for an annual conference on asset-backed securities, where he was talking up the potential for securitizing OnDeck loans.

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