If your small business needs money and you can’t qualify for a traditional bank loan — or if you’d rather not spend weeks, or even months, going through the bank application process — OnDeck Capital is among the online lenders offering an alternative. OnDeck offers small-business loans of up to $500,000 and lines of credit of up to $100,000.
In this review:
- OnDeck’s minimum qualifications
- Reasons to use OnDeck, including speed, looser qualifications
- Where OnDeck falls short, including expense, personal guarantee
- OnDeck’s lending terms
OnDeck has funded over $4 billion in loans to businesses in 700 industries since launching in 2007. The lender works with restaurants, auto body shops, beauty salons, doctors, dentists and other small retailers — businesses with revenue of $100,000 to $5 million, CEO Noah Breslow tells NerdWallet.
OnDeck looks to provide speed and convenience with looser qualifications than a bank, but you’ll likely pay a higher annual percentage rate on the debt. APR represents the true annual borrowing cost of the loan with all fees and interest included.
OnDeck is best for businesses that need money fast for expansion, working capital or short-term expenses and business owners who have poor personal credit.
OnDeck’s lending terms
- APR: 9% to 98% for term loans; 14% to 36% for lines of credit
- Loan amounts: $5,000 to $500,000 for term loans; up to $100,000 for lines of credit
- Loan duration: 3 to 36 months for term loans; 6 months for lines of credit
- Approval time: Decisions within minutes, funding as fast as 24 hours
OnDeck’s minimum qualifications:
The company says it places more value on a business’s cash flow than on a solid credit score, a detailed business plan and assets — criteria typically necessary to qualify for a bank loan. Here’s what’s needed to qualify at OnDeck:
- You’ve been in business at least 12 months.
- At least one owner has a personal credit score of 500 or higher for term loans and a majority owner with a credit score of 600 or higher for lines of credit. This makes OnDeck an option for business owners with bad personal credit.
- You’ve had no personal bankruptcies in the preceding two years.
- Your business has a revenue of $100,000 or more in the last year for term loans and $200,000 or more for lines of credit.
- You’re able to provide a business tax ID, three months of credit card statements, one to three months of bank statements, a Social Security number and a driver’s license number.
- You’re not on the restricted industries list. The company does not lend to banks, collection agencies, real estate brokers or agencies, tax preparation services, pawn shops, auto sales, attorneys, personal trainers, travel agencies and funeral services, among others.
- You’re willing to sign a personal guarantee, a written agreement that pledges your personal assets to repay the loan if your business fails. OnDeck also takes a blanket lien on all business assets on its term loans, which gives the company the right to sell these assets to repay the loan if your business fails to.
OnDeck’s typical borrower profile
| Minimum qualifications | Typical borrower | |
| Personal credit score | At least one owner with 500 or higher for term loans and a majority owner with 600 or higher for lines of credit | A personal credit score over 600 |
| Time in business | At least 12 months | Median of 7 years |
| Annual revenue | $100,000 or more in the last year for term loans and $200,000 or more for lines of credit | Median of $600,000 |
Reasons to use OnDeck
Fast and easy: OnDeck loan applications can be completed online or over the phone in as little as 10 minutes. You only need basic information to apply, including a business tax ID, bank statements, credit card statements, your Social Security number and a driver’s license number.
You’ll be given a decision within minutes and, if approved, can receive funds in as little as 24 hours. This is attractive for a small-business owner who wants to move fast on a business opportunity or needs to meet an unexpected expense and can’t afford to wait months for a bank loan — for example, a retailer that needs $30,000 to buy inventory for a holiday season rush or a restaurant that needs to buy a new oven to stay in operation. Learn more about the application process in our step-by-step guide.
Looser qualifications: Traditional bank loans typically require personal assets as collateral (such as your home or other personal property); OnDeck doesn’t. Banks typically want you to have been in business at least two years, whereas OnDeck requires only one year. And banks often look for a very strong personal credit score of 720 or higher; OnDeck’s minimum for term loans is a score of 500.
Loans get cheaper for loyal customers: OnDeck’s loans require a one-time origination fee of 2.5% of your total loan amount ($2,500 for a $100,000 loan). However, this figure drops to 1.25% on your second loan and 0% to 1.25% on your third and all future loans. Customers in good standing also typically get a reduced interest rate on their loans after several years with OnDeck, according to Breslow.
In addition, you might also qualify for lower rates (9% to 20% APR compared to normal rates of 14% to 36%) on an OnDeck line of credit if you use Intuit QuickBooks software; the two companies recently announced a partnership to create a loan fund targeting established small businesses with strong credit.
Flexible repayments: Loan repayments for OnDeck’s term loans are made either daily or weekly, and repayments for the line of credit are made weekly through ACH withdrawals (fixed, automatic debits from your bank account). Whether borrowers repay term loans daily or weekly depends on factors including time in business, industry, credit score and cash flow. Lower-risk businesses are more likely to receive a weekly option on term loans, the company says.
Since payments are automatic, you don’t have to worry about incurring a late fee, but you do need to ensure you have enough money in your account. If your business misses two straight payments, OnDeck will stop the ACH withdrawals and work with your company on a payment plan, which may include freezing payments for 30 days while you catch up, Breslow says.
OnDeck works with businesses that prefer daily or weekly repayments because of steadier cash flow, such as retailers, restaurants and doctors, and avoids lending to businesses where a monthly payment may be a better fit, such as a consulting firm that has just one invoice per month, Breslow says.
Build business credit: OnDeck reports your payment activity to the business credit bureaus, Equifax, Experian and Paynet. Making timely payments should raise your business credit score, which could help you get a larger and cheaper small-business loan in the future.
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Where OnDeck falls short
Expensive loans: OnDeck’s term loans carry APRs from 9% to 98%, and rates for its lines of credit range from 14% to 36%, according to the company’s regulatory filing. (The company said recently that select customers could qualify for an APR as low as 8.5%.)
This APR includes origination fees on its term loans and a $20 monthly maintenance fee for the lines of credit. However, this $20 fee is waived for the first six months if you draw $5,000 or more within the first five days of opening the credit line. There are no fees to draw money.
OnDeck’s small-business loan rates have steadily decreased over the last few years as it aims to appeal to a wider range of borrowers. The average APR on its term loan and line of credit is now 41%, down from 69% in 2012, according to the company’s latest quarterly report.
The company’s rates, however, are still well above those of traditional bank loans, which are typically less than 10% APR. Other online lenders’ APR can range from 7% to 113%.
“The rates still reflect the risk of the business, and that’s why they are higher than traditional bank rates,” says Matthew Dahlberg, a registered investment advisor and owner of 111th Street Investments LLC in Kansas City, Missouri.
Lien and personal guarantee required: Although OnDeck’s term loans are not backed by specific collateral, OnDeck takes a blanket lien on all of the business assets.
OnDeck also requires borrowers to sign a personal guarantee: a written agreement says the lender can go after a borrower’s personal assets in the event of nonpayment. Failure to repay the loan can also damage your personal credit score. However, personal guarantees are a common requirement of most lenders.
No benefit to early repayments: Although OnDeck doesn’t charge prepayment penalties, repaying the company’s term loans early won’t save you money because the lender requires a fixed amount of fees to be repaid. This differs from small-business loans that require monthly payments of principal and interest based on an amortization schedule, such as Lending Club and Prosper. Borrowers who repay these amortizing loans early will save on interest.
However, borrowers who decide to refinance with OnDeck before a loan is repaid in full will get the remaining interest and fees waived on their first loan, with the principal balance rolled into the new loan, according to Breslow. This differs from a merchant cash advance, a costly financing option that usually rolls all of the interest and fees into new loans if you refinance.
OnDeck business loans: the bottom line
OnDeck loans come with much higher approval rates than traditional banks and can be obtained in as little as 24 hours, compared to a two- to six-month wait for a traditional bank loan.
With repayment terms from three to 36 months, OnDeck’s term loans are better suited to a short-term expansion opportunity, whether it’s to purchase inventory, hire new employees or launch a marketing campaign. The line of credit is better for unexpected expenses and managing cash flow, because you’ll have access to cash that can be borrowed as needed.
OnDeck’s loans can be expensive, but if you’ve spotted a business opportunity and can’t afford to wait several months for a bank loan (or don’t qualify) or if you need help managing cash flow, OnDeck is a good option, as long as you are confident your profits will outweigh the costs.
Find and compare small-business loans
NerdWallet has created a comparison tool of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
This post was updated. It originally was published May 28, 2015.
Image via iStock.
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