By Hollie Slade – March 6, 2014
OnDeck, a company that makes online loans to small businesses today announced it raised $77 million in a late stage round led by Tiger Global Management.
The company which makes mainly short-term loans to entrepreneurs who need a quick hit of capital to buy inventory or expand rapidly, plans to use the cash infusion to expand by growing its team and launching new products. OnDeck uses algorithms to assess applicants based on cash flow, online sentiment and credit history.
CEO Noah Breslow, an MIT computer science graduate who designed satellites before getting involved in a string of tech companies says it will soon hit the $1 billion mark in the amount of cash its lent out to small businesses.
OnDeck was founded in 2006 and saw revenue of $65 million revenue last year, earning it the number 11 spot on FORBES’ 2014 America’s Most Promising Companies list.
It’s part of a new financial lending ecosystem which offers an alternative to big banks, which approved less than a fifth of all requests for small-business loans they received in January. Small banks approved about half of applicants, according to a survey by Biz2Credit, an online platform that matches businesses and lenders.
Instead of having to meet with a loan officer toting income tax records, personal finance records and other paperwork, applicants upload 90 days’ worth of cash flow data. From there, OnDeck grabs personal and business credit history from bureaus like Experian as well as scanning publicly available records for past lawsuits. It also considers the health of an applicant’s industry and region, and checks online reviews from sites like Yelp and Google Places.
This almost artificial intelligence approach to lending extends to its payment system: On Deck withdraws small increments from customers’ bank accounts each day rather than asking for monthly payments. Amounts withdrawn depends on how the business is performing based on another statistical rubric.
Rates are designed for short-term lending and therefore aren’t low – a typical rate for a six-month loan is 20 cents for every dollar borrowed. The average loan is around $35,000, says OnDeck.
Existing investors Institutional Venture Partners, RRE Ventures, SAP Ventures, Google Ventures, First Round Capital and Peter Thiel also participated. OnDeck has now raised a total of $180 million in equity and over $300 million in debt financing. James Robinson III, the former CEO of American Express, is an investor and director.