You can use the Web to buy toilet paper, order dinner and watch movies. So why not use it to get a small-business loan?
That’s the logic behind OnDeck, one of several companies that originate small-business loans faster and more efficiently than banks. The company began in 2007 as an alternative lender; it was “on deck” for borrowers who couldn’t get approved for a bank loan. The cost of an OnDeck loan is still more than six times the lowest-rate bank loan, but the company is evolving. OnDeck wants to build its brand and be real competition for traditional financial institutions.
“I think this whole category of online lending is going mainstream,” OnDeck CEO Noah Breslow said in a recent interview with NerdWallet, almost a year after OnDeck went public.
Below, Breslow gives more of his insights into this growing industry. You can learn more about the lender in our OnDeck review. To compare a range of options, check out our small-business loans page.
This interview was edited for clarity and brevity.
NerdWallet: OnDeck’s marketing and advertising budget has increased almost $8 million in the last year. What is OnDeck trying to achieve there?
Noah Breslow: Like any company, I think we have multiple goals in marketing. Goal No. 1 is reaching new customers. That’s reaching customers both offline through things like direct mail, radio and TV, as well as online through search engine marketing, search engine optimization and stuff like that. One of the things we decided to do about a year ago is start to invest in brand marketing. We became a sponsor of Minor League Baseball. We’re a sponsor of Score, which is a nonprofit that consults with business owners to give them advice on how to run their businesses.
Some of that work was important because, look, we’re not Wells Fargo, we’re not Bank of America. In some sense, as OnDeck continues to grow and our product offerings continue to get better, we’re not going to be competing with tiny, fringe online lenders anymore. We’re going to be actually rubbing shoulders with some of these bigger financial institutions. So the goal here really is to build our brand up in customers’ minds so they feel like, “I don’t have to go to a bank first anymore. I can come to OnDeck … and build a relationship that I can access credit with over the next 5 to 10 years.”
NW: Is OnDeck starting to view big banks as competition? Are you trying to emulate the brand recognition those banks have?
Breslow: I mean, I don’t want to kid ourselves — we have a long way to go to get there. Even the research we’ve done suggests that our customers are obviously much more aware of those brands than they are of OnDeck. But that being said, I think this whole category of online lending is going mainstream. When I talk to our customers who are in their 20s or 30s, they don’t have any special allegiance to their bank, and they do everything else in their lives online: They go to Priceline to buy plane tickets, they get their content from Netflix, and they buy everything for their house on Amazon. So why shouldn’t they be able to get credit in the same way?
NW: How has the online small-business lending industry changed since OnDeck started lending in 2007?
Breslow: When we started the company, there were really two alternatives. There were banks at one end of the spectrum serving a very small sliver of small businesses. At the other end of the spectrum, there were [companies that offered merchant cash advances], who were charging 150% APR. There was nothing in the middle, so we started what we thought was the blue-chip alternative to bank loans.
In the last 24 to 36 months, I think we’ve gone from skepticism about online lending to a stampede toward online lending. You see a lot of new entrants, and I think for customers that’s a good thing — more choice in the market is good.
NW: Is there anything else OnDeck is doing to evolve in this rapidly changing online lending industry?
Breslow: We’re continuing to work on our product experience. We just did a mobile announcement so we have an Android app that’s out there, and we have an iOS app that’s in review right now on the app store, coming out in a couple weeks. If I look at the way small-business owners are interacting with us, they come to our website, they check their balance like you would check your balance in an online banking portal. But increasingly we’re seeing them come to our website on a mobile device. … Eventually we’ll probably support the full application process too from the mobile device.
NW: Does OnDeck consider itself in the merchant cash advance arena, or is it trying to move away from that? [An MCA is essentially a cash advance on a portion of your future sales. It’s a form of financing that carries extremely high costs.]
Breslow: We never really did consider ourselves in that arena. We’ve always defined our product as a true business loan — it builds business credit, and it’s regulated as a loan. We definitely defined ourselves as a short-term business lender for the first six to seven years of our existence, and our most common product was a six-month loan. Our average term now is about 12 months, and it’s been creeping up over the last year. I do think where we’d like to be is really viewed as a full-spectrum lender. If you’re a bankable customer who’s looking for a longer-term, lower-APR loan for a larger amount, we can provide that to you. But if you’re a more growth-oriented business and want the speed and convenience of a six-month loan, we should be the best game in town for you as well. So it’s really sort of evolving from the shorter-term space to the full-spectrum space.
Do you need a small-business loan?
NerdWallet has come up with a list 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.
Compare business loans
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel. NerdWallet staff writer Steve Nicastro contributed to this report.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
Top image via iStock.
from NerdWallet Credit Card Blog
http://www.nerdwallet.com/blog/small-business/ondeck-ceo-small-business-loans/
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