If you’re a small business owner looking for funding, you’ve probably realized it can be difficult to get a traditional bank loan these days. There are tight restrictions and underwriting can take months to reach a decision. When you need money within the next month, banks aren’t always your best option.
Online small business lenders have been replacing the need for bank loans over the past several years, and OnDeck has been one of those lenders. It was founded in 2007, has an A+ rating with the Better Business Bureau, and has recently announced its expansion into Canada and Australia.
It’s a fast growing company offering competitive benefits to small businesses. While it offers a business term loan and line of credit, we’ll be reviewing the business term loan here.
OnDeck Small Business Loan Details
OnDeck can loan your business between $5,000 and $500,000 over a period of 3 to 36 months. You can make fixed payments on your loan on a daily or weekly basis.
OnDeck separates its loan offerings based on term. For 6, 9, 12, and 18 month loans, rates are “as low as 10% for every dollar borrowed.” It gives this example: if you borrow $21,000 on a 6 month loan term, for every $1 borrowed, you pay on average $0.18. The average cost of the loan is $3,789.
Its “Term 24” loan is geared toward more established businesses. This has terms of 12– 24 months, with loan amounts between $50,000 and $250,000. Fixed APRs range from 19.99% – 39.99%.
As with many small business loans, APRs vary greatly depending on the industry your business is in, your business credit, your personal credit, your revenue, and the length of time you’ve been in business.
The Pros and Cons of an OnDeck Small Business Loan
Pro: OnDeck debits your account on a daily or weekly basis, depending on the terms offered to you. This helps make payments more manageable as they’re in smaller increments. Other lenders will debit your account once per month for a much greater amount, which isn’t always a good idea if you’re having trouble with cash flow.
Con: OnDeck’s rates are on the higher end when compared with other options, and its loan term is also on the shorter side, especially if your business doesn’t qualify for the “Term 24” loan.
Pro: OnDeck has one of the lowest origination rates out of the many online lenders we’ve looked at. Most range from 1% – 5%.
What Businesses Are Eligible For an OnDeck Loan?
As long as your small business has been running for one year or more, has $100,000 or more in annual revenue, and you personally have a FICO score of 500 or more, you’re eligible to receive a loan from OnDeck.
For its “24 Term” loan, you must have 3 years or more in business, generate $100,000 or more per month in revenue, and have frequent business checking transactions. It’s also suggested for the business and personal credit to be “strong.”
There are certain industries that might not be eligible (they’re evaluated on a case-by-case basis), but OnDeck claims to work with over “700 different kinds of businesses,” and loans are available in every state.
It doesn’t place as much emphasis on your credit score, either. Cash flow is more important to OnDeck, as that’s the biggest indicator of whether or not you can handle making payments.
It actually has its own “OnDeck Score,” which is a business credit scoring system it uses to analyze a large variety of data points in your application.
That said, it doesn’t look good if you have any past liens or judgments against you or the business. Even if your credit score isn’t great, make sure it’s clean.
Application Process and Documents Needed
The application process to apply for a small business loan with OnDeck is fairly straightforward. The website says the application takes about 10 minutes to fill out online, though you can also apply over the phone.
OnDeck also states it can approve you “in minutes” and have you funded within 24 hours.
To make the application and underwriting process go as smoothly as possible, it’s best to have the following documents and information ready:
- Credit card statements for the past 3 months (if you accept credit card payments)
- Bank statements from the last 1-3 months (if you have more than one bank account, it’s good to include them all)
- Social Security numbers of business owners who are applying
- Driver’s license of business owners who are applying
- Business tax ID
If you need money quickly, it pays to have your paperwork organized. Consider contacting your accountant so they can prepare the paperwork needed, and make sure you have access to other important business documents.
Why? You might also be asked to provide your lease agreement or proof that you own the building your business is located in, your Profit and Loss Statement for the past year, your Balance Sheet from the past year, previous years’ tax returns, and proof that any past judgments or liens against your business have been satisfied.
The Fine Print
OnDeck loans are backed by a personal guarantee instead of being secured by property or personal assets. That means the owner of the business – whoever is applying for the loan – is responsible for it.
Additionally, a UCC lien is filed against the assets of the business in case you fail to pay the loan back, but this is standard for small business loans.
There’s a 2.5% origination fee associated with this loan, but if you decide to renew your loan, the origination fee is reduced to 1.25%. OnDeck also states its “rates average about 15% of your total loan amount.”
Which Businesses Benefit the Most from a Loan With OnDeck?
You might be looking for a loan for your small business for any number of reasons. Needing to buy more inventory, needing new equipment, wanting to hire more employees, bolstering your marketing budget, undergoing renovations, or smoothing out cash flow are some of the most common reasons to obtain a small business loan.
Younger businesses can benefit from OnDeck’s shorter loans, while more established businesses can benefit from its “Term 24” loan.
Other Alternative Small Business Lenders
While OnDeck is certainly a fast-growing company, there are other small business lenders out there who might offer your company better terms and rates. Some lenders are just able to provide better loans to businesses in certain industries, so it’s always worth shopping around.
Two alternative small business lenders worth a look are Swift Capital and Bond Street.
Swift has an origination fee of 2.5%, its rates are as low as 9.99% (there’s no cap specified), and it lends on terms of 3 – 12 months. It can loan your business between $5,000 and $200,000. You need a minimum FICO score of 550, one year in business, and at least $5,000 in monthly revenue to qualify.
Bond Street’s origination fee is 3%, its APR ranges from 8% – 25%, and it lends on terms of 1, 2, or 3 years. You can borrow between $50,000 and $500,000. Your business does need 2 years of operating history and $200,000 or more in annual revenue to qualify. The minimum credit score needed is 660, but it’s not the only thing at which Bond Street looks.
The small business lending industry is booming, and lenders are offering different types of loans to different kinds of businesses. The criteria can change on a monthly basis. For that reason, it pays to shop around to see which lender can offer you the best rates and terms. You’ll likely be asked by any representative you speak with which companies you’ve spoken to already, so it’s expected. Just try to shop around within the span of 30 days so your credit is only minimally affected.