For small businesses, there’s good news and bad news when it comes to financing. The bad: Getting small-business loans online, where it’s easier to get approved and you get funds faster, is much more expensive than going to a bank. The good: Some online loans are getting cheaper.
Consider OnDeck. With more than $3 billion in small-business loans to date, it’s one of the alternative lending industry’s biggest players and one of the few publicly traded online small-business lenders. The average annual percentage rate of OnDeck’s small-business loans and lines of credit has decreased over 20 percentage points in the last two years, from 66% in 2013 to 43% in 2015, according to a recent OnDeck public filing.
OnDeck’s expanded scope
OnDeck CEO Noah Breslow tells NerdWallet that he expects the company’s rates to continue to decrease. That’s a positive development for borrowers who are looking to OnDeck for fast cash.
Still, OnDeck’s small-business loans aren’t cheap, even compared with other online lenders. OnDeck’s term loans range from 9% to 98% APR. That’s more expensive than other online lenders that offer term loans, including Fundation, Lending Club, Dealstruck and Funding Circle — although those lenders offer longer terms than OnDeck, which generally means lower APRs. OnDeck’s lowest rate is around twice as much as a traditional bank loan with the best rates.
OnDeck’s cost decrease is one sign the online lender with high interest rates wants to be more than just a lender for bad-credit borrowers. OnDeck recently launched a new line of credit for small-business owners using Intuit Quickbooks. The new $100 million fund will target established small businesses with strong credit and feature lower annual interest rates of 9% to 20%.
“We’ve continued to move up market since we started the company,” Breslow says.
If you’re interested in a small-business loan from OnDeck, learn more about its products, terms and costs in our OnDeck review. To compare a range of options, check out our small-business loans page.
OnDeck term loans and lines of credit cost over time (weighted average APR)
Why OnDeck’s rates are falling
Longer term lengths: The average OnDeck term loan length increased from 9.7 months in 2013 to 12.3 months in 2015. When the company started in 2007, the longest term it offered was one year; now, its longest term is two years. When it comes to alternative financing, longer terms generally mean lower interest rates, and shorter terms mean higher interest rates, says Mitchell Weiss, a financial consultant and executive in residence at the University of Hartford.
Lower APR for lines of credit: OnDeck introduced its line of credit in 2013. It generally has a lower APR, 13% to 50%, than OnDeck’s term loan. As OnDeck’s line of credit has grown in popularity, it has brought down the company’s total average APR.
Lower rates for repeat customers: To capitalize on repeat borrowers, OnDeck rolled out a customer loyalty program earlier this year, offering lower origination fees and interest rates for return customers. The company has originated more loans from repeat customers in 2015 than in previous years, according to its recent public filing.
But having to take out multiple small-business loans to stay afloat can be a costly mistake if it means your business spirals into debt. OnDeck re-underwrites repeat borrowers to ensure that they’re still in good standing, Breslow says.
“If we see a business heading in the wrong direction,” he says, “the last thing we want to do is provide them with more debt.”
The bottom line
OnDeck’s average APR for its term loans and lines of credit has steadily dropped over the past two years. So although the cost of OnDeck’s small-business loans remains comparatively steep, they might be smart for businesses that don’t qualify for a bank loan.
If you’re ready to get started with OnDeck, apply on the lender’s secure site:
Get StartedFind and compare small-business loans
To compare OnDeck to other alternative lenders, use NerdWallet’s small-business loans page. We gauged lender trustworthiness 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
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.
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel
Image via iStock.
This post was updated. It was originally published on Sept. 17, 2015.
from NerdWallet Credit Card Blog
http://www.nerdwallet.com/blog/small-business/ondeck-small-business-loans-interest-rates/
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