By Owen Linderholm — Thursday, Mar 6, 2014
OnDeck Capital is a company that makes loans to small businesses. Traditionally small businesses have gotten funding in a few straightforward ways. One is self-funding from the savings and bank accounts of owners and their friends and families. The second is with loans fro the government, the Small Business Adminsitration (SBA) to be specific. And the last is from the local bank. But there have always been real limitations to these source of funding. With self-funding the limit is obvious – the typical person has very limited resources to call on even when friends and family are factored in. The challenge with the SBA are strict rules about qualifying for the loans and a lengthy timetable – both of which can limit their usefulness in many cases. And finally, banks have become much ore rigid and gun-shy in their requirements for loans since the recent set of fiscal crises. Once these options are exhausted, where else can a business turn?
OnDeck Capital is the oldest and largest of a new breed of small business lenders that can qualify and make loans to small businesses extremely rapidly. In less than an hour in some cases. These loans can be a boon to a business experiencing growth or seasonality or any one of a number of reasons for a sudden, rapid need for additional capital. Although this is a relatively new area (OnDeck was founded in 2006 and made its first loan in 2007), it is begin to get real traction. Noah Breslow, CEO of OnDeck says that the company was based around the idea of “harnessing or aggregating that online data [that is now readily available for many small businesses] to ultimately create a platform that can deliver a loan decision in a fraction of the time of a traditional bank.”
Over the past few years OnDeck has built itself to the point where it expects to have delivered $1 Billion in capital to main street small business by the middle of March. And it just raised an additional $77 million from Tiger Global Management and others to help it grow with new product development, geographic growth and more aggressive marketing.
It is important to understand that OnDeck is offering a new tool for a small business to raise capital but like all such tools, it needs to be fully understood. The type of loan that OnDeck offers has big advantages (primarily speed for approval and delivery of funds as well as a wider range of businesses that qualify, especially smaller businesses) but it also has disadvantages (higher interest rates and limits on the amount that can be borrowed). Noah Breslow suggested in our conversation that it was ideal for small businesses that had an urgent need to meet either seasonal demands or growth opportunities, especially when a failure to act would result in the loss of a significant opportunity and those applications make a great deal of sense. Like all loan products the ROI and cash flow implications need to be considered carefully before making an agreement. But this type of loan does meet some real world needs and circumstances for small businesses. You can find out more at www.OnDeck.com.