How the world’s largest fintech business lender still moves fast
OnDeck’s CEO believes online lenders are “uniquely positioned” to respond to economic events.
OnDeck is not new to fintech, having launched in 2006 and funded its first small business loan in 2007. Today, it operates in the US, Canada and Australia and passed $10 billion in total loans originated to small- to medium-sized enterprises (SMEs) in 2018.
In short, it’s well past its startup phase.
But OnDeck’s chief executive officer Noah Breslow believes the company, as well as other online lenders, are still able to move quickly despite reaching scale. This includes responding to economic events such as the recent government shutdown, hurricanes which have affected various parts of the country or anything else which may impact small businesses.
“Small business matters, it’s an important segment, and access to capital is what allows small businesses to be resilient,” he told the AltFi Summit in Sydney this week.
“There’s this real issue in a down economy or a slowing economy […] small businesses become more susceptible to being ‘tipped over’ if you will, without access to that capital.”
Speaking with Finder at the Summit, Breslow said OnDeck is “uniquely positioned” to respond to economic challenges which affect small businesses.
“We had a bunch of hurricanes hit different parts of the US and within 24 hours we were able to reconfigure our systems. We want to make sure to evaluate applications coming in from the affected area in a different way, but we are also uniquely positioned to give capital to businesses that are rebuilding or trying to come back after something like that.”
A big part of OnDeck’s nimbleness lies in its technology. It employs a sophisticated credit assessment process to evaluate businesses in an underserved segment of the market: small businesses. OnDeck’s average customer has been in business for eight years, has $600,000 in annual revenue and is borrowing to grow their business. This technology allows OnDeck to approve smaller loans, which banks have traditionally struggled with.
“I think what a lot of banks do for the smaller loan sizes is they simplify the credit evaluation process to the business owner instead of looking at the entire business,” said Breslow. “What our technology does is we can evaluate the business digitally in a fraction of the time it takes traditional banks. That’s why we are able to open up credit responsibly to a sector that’s not well served.”
Breslow says a huge part of OnDeck’s assessment is analyzing the last three to 12 months of businesses’ cash flow as well as their overall leverage.
“If we see a business trending negatively […] if we see a lot of bounced checks and other kinds of warning signs, that is one reason they get rejected,” he said.
“We also do a debt service and capacity analysis. If they have other debts, either personal debts or business debts that their business can’t support or are unsustainable, or we think that our loan would be the loan that would tip them over, we want to stay away.”
OnDeck also stays focused on its chosen customer segment to be able to serve it properly. Breslow says it has three products available right now: a business term loan, line of credit and equipment financing. However, there are some more business products on his radar.
“There are three other products we do not offer today, and that’s invoice financing, Small Business Administration (SBA) guaranteed loans and also a small business credit card, and I do think over time we will check off more of those categories.”
But does Breslow want to replace bank business funding altogether?
“We recognize that banks play a huge role in financing commercial enterprises of all sizes, but we found a hole in the market.”
You can learn more about OnDeck’s small business loans by reading our review.