Thinking of applying for a short-term business loan with OnDeck Capital or just want to learn more about options when it comes to small business lending? The New York based online lender is among the rising stars in the alternative lending industry specifically targeted to business borrowers. But, it’s not for everyone. In this OnDeck loan review, we will cover what you need to know before you use this platform to apply for a loan, including what makes OnDeck Capital different from other sources of financing, which kinds of businesses qualify, and more importantly, which businesses will benefit the most from an OnDeck loan.
OnDeck Capital: An Overview
OnDeck Capital makes receiving a business loan extremely quick and simple. The loan application process takes only a few minutes to complete, and a loan request can be approved within a few hours (in some cases, even a few minutes). After filling out a short online form, applicants will be asked to provide three months worth of cash flow data. Unlike banks that shy away from “small” loans under a million dollars, OnDeck offers business loans from $5000 to $250,000 dollars, and funding can received in as little as one business day. These loans are short-term, typically ranging from 3 to 18 months.
OnDeck’s secret sauce is it’s proprietary algorithm and growing data pool that allows the company to automatically evaluate loan applications within minutes based on the analysis of several data sources, including business age and type, location, cash flow, past credit use, vendor payment history, and legal records. It even considers a business’ presence on sites such as Yelp and Google Local.
Once approved, repayment is made via daily withdrawals from customers’ bank accounts rather than monthly increments.
What Makes OnDeck Different?
If you choose to apply for an OnDeck loan, there are a few important points that you should be aware of. First, the decision whether or not to approve a loan application is completely automated and depends heavily on your business data. So, you won’t be speaking to a loan officer, and your personal history is not a significant factor for approval. While there are other platforms, such as Kabbage, that use such an automated process as well as a host of alternative lenders that routinely do not consider personal data when making a funding decision, what sets OnDeck apart is that it actually offers business loans.
There are pros and cons to their business loan model. The main drawback is that OnDeck Capital requires the borrower to personally guarantee the loan. This means if your business fails, you will have to personally fork over the remaining balance. Many other forms of alternative financing, such as merchant cash advances, do not typically require a personal guarantee. On the other hand, with a loan when you pay it back, you can positively affect the credit rating of your business. This can help you get financing at better rates later on.
Which Businesses Benefit the Most from an OnDeck Loan?
Though OnDeck will approve many businesses that banks and other traditional lenders won’t, there still are a few notable requirements. Aside from being based in the U.S., your company must have at least one year of sales history and generate over $100,00 in annual revenues. The company seems to be specifically focused on brick and mortar businesses with steady cash flow, like restaurants, dentists, salons, and repair shops. Though this may sound great, there is one major caveat to keep in mind. OnDeck can be expensive, with real APRs reaching 60% to 70%, and the daily withdrawals can be a major drain on your available cash flow. In other words, this form of financing is only for those businesses that have a strong, predictable cash flow or for those expecting a cash windfall in the near future.
In short, OnDeck Capital provides a much needed service for small business borrowers. But, its loans are primarily suited to businesses with short-term needs and the cash flow to sustain their repayment.