If your business needs cash and you can’t qualify for a bank loan — or you’d rather not spend weeks or months going through the typical application process — OnDeck is one of the online lenders that offers an alternative. It provides small-business loans of up to $500,000 and lines of credit of up to $100,000.
OnDeck looks to offer consumers speed, convenience and looser qualifications than they’d encounter at a bank, but it might also charge a higher annual percentage rate. A loan’s APR represents its true yearly cost with all fees and interest included.
OnDeck is a good option if:
- You need money for a short-term expansion opportunity.
- You need a line of credit to handle unexpected expenses or manage cash flow.
- You need fast cash and don’t qualify for bank loans.
OnDeck has issued more than $4 billion in loans to businesses in 700 industries across the U.S., Canada and Australia since launching in 2007. The lender works with small businesses that have annual revenues between $100,000 and $5 million, such as doctors, dentists, restaurants, auto body shops and beauty salons, CEO Noah Breslow says.
OnDeck has long appealed to small-business owners with bad credit, but those aren’t the lender’s only users. Its customers’ personal credit scores tend to be much higher than the 500 FICO minimum OnDeck requires for its term loans. And last year, the company took action to appeal to more borrowers by raising its maximum term loan amount to $500,000 and extending its repayment term to three years. It also increased its maximum business line of credit from $20,000 to $100,000.
IN THIS REVIEW
OnDeck’s minimum qualifications
OnDeck’s lending terms
Reasons to use OnDeck (including speed and looser qualifications)
Where OnDeck falls short (including expenses and a lien requirement)
OnDeck’s minimum qualifications
The company says it places more value on a business’s cash flow than on its credit score, business plan and assets — criteria typically necessary to qualify for a bank loan. Here’s what’s needed to qualify at OnDeck:
| Time in business | 1+ year |
| Personal credit score | 500+ for term loans, 600+ for lines of credit |
| Annual revenue | $100,000+ for term loans, $200,000+ for lines of credit |
| Documents and information |
|
| Other requirements |
|
Learn more about the application process in our step-by-step guide.
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OnDeck’s lending terms
- 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.
- APR: 9% to 98% for term loans; 14% to 36% for lines of credit.
- Approval time: Decisions within minutes, and funding in as little as 24 hours, but typically in a few days to a week.
- Repayments: Term loans are repaid either daily or weekly; lines of credit are repaid weekly.
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. You’ll be given a decision within minutes and, if approved, can receive funds in as little as 24 hours. This is attractive for small-business owners who want to move quickly on a business opportunity or need to meet an unexpected expense and can’t afford to wait months for a bank loan — for example, a retailer who needs $15,000 to buy inventory to keep up with increased demand (here’s one example).
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 to receive funding, while OnDeck requires only one year. And banks often want borrowers to have a personal credit score of 720 or higher; OnDeck’s minimum for customers receiving term loans is 500. However, less than 5% of OnDeck’s borrowers have a 500 credit score; the typical borrower’s score is more than 600, according to the company.
Loyal customers get cheaper loans: OnDeck’s loans have a one-time origination fee of 2.5% of your total loan amount. That’s $2,500 for a $100,000 loan. This fee drops to 1.25% on your second loan and can drop as low as 0% on your third and future loans. Customers in good standing also typically get a reduced interest rate on their loans after several years with OnDeck, 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 larger and less expensive small-business loans in the future.
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Where OnDeck falls short
Loans can be expensive: 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.
This APR includes origination fees on its term loans and a $20 monthly maintenance fee for the lines of credit. The $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 its costs to acquire and underwrite customers have fallen and it has moved to appeal to a wider range of borrowers. The average APR on its term loans and lines of credit is now 41%, down from 69% in 2012, according to the company’s latest quarterly report.
But the company’s rates are still well above those of traditional bank loans, which typically charge less than 10% APR — though they do take much longer to get and come with stricter requirements. Competitors’ APRs range from 7% to 108%.
Lien required in addition to personal guarantee: Although OnDeck’s term loans aren’t backed by specific collateral, the company does take a blanket lien on all of a business’s assets.
Like most lenders, OnDeck also requires borrowers to sign a personal guarantee, a written agreement that says the lender can go after a borrower’s personal assets in the event of nonpayment. Failure to repay the loan could damage your personal credit score.
Frequent repayments: OnDeck deducts a fixed daily or weekly payment from your business bank account. Term loans are repaid daily or weekly, while lines of credit are repaid weekly.
Daily or weekly payments might not be the right fit for businesses with uneven cash flow.
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 the weekly repayment option on term loans, the company says.
No benefit to early repayments: OnDeck doesn’t assess prepayment penalties, but repaying its term loans early won’t save you money because the lender requires customers to pay a fixed amount of fees. This differs from small-business loans that require monthly payments of principal and interest based on an amortization schedule. 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 may qualify to get the remaining interest and fees waived on their first loan, with the principal balance rolled into the new loan, Breslow says. This differs from a merchant cash advance, a costly financing option that usually rolls all of the interest and fees into the new loan if you refinance.
If OnDeck is the right fit:
Want to compare other lenders?
If OnDeck might not be the right fit for you, 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.
Compare business loansSteve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
This article was updated. It originally was published May 28, 2015.
from NerdWallet
https://www.nerdwallet.com/blog/small-business/ondeck-small-business-loan-review-easy-money-cost/
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