OnDeck Review: Who Is OnDeck Capital?
OnDeck Capital, Inc. is a small business lender headquartered in New York City that was founded in 2006 by Mitch Jacobs. OnDeck was launched to the public in 2007 and became a public company in December 2014, opening trading on the New York Stock Exchange.
Since then, the company has gained an increasing market share through steady growth and venture funding. Its stated mission is to spur the growth of small business lending in a way that provides greater access to capital for more business owners.
Image source: OnDeck
It seeks to accomplish this by further developing and innovating its proprietary loan application technology. This technology scans and scrutinizes several thousand data points from an extremely wide range of sources, including online and social media.
This method paints a fuller picture of a small business’s health beyond just checking the owner’s credit score. Due to the speed and efficiency of its system, OnDeck completes this comprehensive analysis in a matter of minutes.
To date, OnDeck claims to have approved more than $3 billion in small business funding. It also claims on its website to have collected an excess of 8 million in payments from customers since its inception in 2007.
OnDeck has been featured in a number of reputable financial and news outlets. Some of these include Forbes magazine, Business Insider, Inc. 500, PBS, and others. It was ranked as #11 on Forbes’s list of America’s Most Promising Companies for 2014.
OnDeck Review: Services
OnDeck allows small business owners to claim up to $100,000 in loans with APRs starting at 13.99%. In terms of small business lending, this is a larger amount of money than what many other online small business financing services offer.
OnDeck small business loans operate like normal lines of credit. The borrower is not required to use or pay interest on the entire sum. The borrower takes out as much as he/she needs, when needed, and that’s it. Interest will only be applied to the percentage of the OnDeck small business loan that the borrower actually uses.
Qualifications for OnDeck Loans
While OnDeck will receive loan applications from small business owners with fair to decent credit, it, nevertheless, has certain qualifications that each borrower must meet to be approved for its OnDeck business loans.
For OnDeck line of credit and OnDeck term loan, some of the qualifications include:
- at least 1 year in business
- the principal owner must possess a credit rating of 500 or higher
- minimum gross yearly revenue for the business has to be at least $100,000
Some online lenders are not able to provide loans to every potential borrower, usually based on some sort of location-based restriction. However, one of the nice things about OnDeck is that it services borrowers in all 50 states. This translates into a broad availability that helps OnDeck stand out from other online loan providers.
The OnDeck Small Business Loans Process
The OnDeck lending process is simplified and expedient.
OnDeck estimates that it will take you no more than 10 minutes to input your information. You’ll be asked to provide basic info such as your name, phone number, country of residence, and how you heard of OnDeck.
From there, you’ll answer loan-related questions, including your desired loan amount, the immediacy of your loan needs, and how you’ll use the loan money. During this process, you will be required to choose a password to open an OnDeck account.
After this, you will enter info about your business along with more biographical and personal financial data. Once your data is inputted and your new OnDeck account is opened, OnDeck processes your loan.
OnDeck reviews your loan within minutes, and loan amounts are often available within the following 24 hours. From there, you can use your OnDeck money as needed on a wide range of business expenses.
How OnDeck Uses Pertinent Data Points
A veritable wealth of third-party information is aggregated to build the “big picture” of a small business’s health and viability. This includes cash flow, history of vendor payments, credit history, and the principal business owner’s credit score, among others.
Similar to Kabbage, another online small business lender, OnDeck evaluates pieces of data that originate from across the Internet and, more specifically, social media. Review sites, such as Yelp, are combed for clues that OnDeck uses in analyzing the applicant’s cash flow, popularity, and overall health, to name only a few.
Anyone who has applied for a small business loan through a conventional lender, such as a bank, knows all too well the struggle involved in seeing it through. Traditional markers of loan qualifications, such as excellent credit and high cash flow, have more often disqualified the majority of business owners seeking loans.
Unfortunately, banks and other traditional lending institutions have not grown with the changing times. They continue to ignore a business’s online presence or other relevant, verifiable data points, such as the frequency and timeliness of vendor payments, shipping and logistics logs, and online accounting ledgers.
However, by filling in the gaps where old-fashioned lenders fail to innovate, OnDeck is claiming to champion and accelerate small business development. Based on the number of successful customers it has had through the years, OnDeck’s system is, at least, confirming that small business owners without sterling credit or extreme cash flow can nevertheless effectively manage and repay sizable loans.
OnDeck Loan Types and Terms
There are three main types of OnDeck loans:
- short-term business financing
- long-term business financing
- business line of credit
The OnDeck short-term business loans top off at $250,000. Repayment terms for these OnDeck loans start at 3 months and extend no further than one year.
Long-term business loans are capped at $500,000, by far the largest of OnDeck’s loans. Repayment schedules for this type of loan range anywhere from 15 months all the way to 36 months, or 3 years.
With an OnDeck business line of credit, you are limited to the lowest working capital loan. True to its name, however, the money in a line of credit loan is available to you whenever you need it. You may do so without a corresponding, fixed repayment term.
Fees are not assessed for withdrawing money from your OnDeck line of credit. You only repay the amount you actually use plus APR, not on the entire loan amount.
Furthermore, no restrictions are placed on how any of the OnDeck small business loans can be used. Your money can be used to purchase anything, including supplies, equipment, training, payroll, and more.
OnDeck Repayment Terms
Repayment Terms with OnDeck loans differ based on the type of loan that is taken out.
OnDeck Business loans, for example, will be repaid in fixed payments on either a weekly or monthly schedule. These repayments deduct automatically from the borrower’s business banking account.
Borrowers who take out OnDeck business loans can take advantage of certain prepayment incentives, such as reduction of interest. These incentives are determined at OnDeck’s discretion and are based upon your credit score and the health of your business.
If you choose to take out a line of credit with OnDeck, however, your repayment terms will differ.
For example, repayments must be scheduled on a weekly basis. Like the business loan, line of credit loan repayments are deducted automatically from your business checking account.
However, unlike the business loan, an OnDeck line of credit requires a $20 maintenance fee.
This can make an OnDeck line of credit more expensive when factoring in the monthly cost of repayment. Not only will your APR be higher with an OnDeck line of credit loan, but you will be required to pay the additional $20 for account maintenance.
The only exception to this is for borrowers who withdraw more than $5,000 within the first five days of each month, in which case the $20 fee is waived. Despite these incentives, the cost of utilizing this OnDeck line of credit may prove more costly for certain borrowers depending on things such as APR and the amount of the loan that is used.
One more noteworthy item: Online reviews, both professional and customer-based, say that OnDeck installs a daily repayment schedule as an option alongside its weekly and monthly terms. However, daily repayments are not mentioned on the OnDeck website.
The possibility of being assigned a daily repayment term is something to keep in mind should you apply for an OnDeck small business loan.
APRs and Interest Rates
Your OnDeck loan will come with varying APRs depending on a host of borrower-specific factors.
As is the case with most lenders, the lower your credit, the higher your APR will be. APR will also likely be higher if your business’s cash flow is closer to the minimum required. The higher the business cash flow, the better the chances of obtaining a lower APR.
For line of credit loans, your APR can range anywhere from 13.99% to 36.00%. The health of your business will be evaluated as part of OnDeck’s decision-making process along with your personal credit.
Business loans, on the other hand, have a different fee structure.
Short-term loans assess a “Total Interest Percentage,” which calculates interest based on a percentage of your loan. For example, if you take out a $20,000 loan with a 10% Total Interest Percentage, your interest for the entire loan comes to $4,000. Therefore, you will be obligated to repay $24,000 total for your loan.
OnDeck’s long-term loans work differently from their short-term loans. With a long-term loan, you will be assessed an annual interest rate. This rate is calculated based on the average balance of your loan.
With this in mind, a $50,000 loan at a 9.99% annual interest rate amounts to $4,995 in interest. This brings your repayment total to $54,995 to start. On 24- to 36-month repayment terms, your interest can fluctuate year to year depending on your outstanding loan balance.
One of the chief criticisms of OnDeck is that it is more or less operating as a “merchant cash advance” for small businesses. This includes charges that the company’s interest rates are unnecessarily inflated, sometimes even reaching triple digits in the past.
While OnDeck claims to have capped its interest rates at 99%, it is true that its rates are among the highest in online small business lending. You would do well to examine all of your options prior to applying for an OnDeck loan. The monthly repayments may prove to be too much when interest is factored in.
As mentioned previously, OnDeck business line of credit loans carry a $20 monthly service fee. No loan origination fees apply to its lines of credit.
However, both short- and long-term business loans include origination fees. These fees cover the processing and servicing expenses associated with approving your loan, but OnDeck has structured its origination fees in such a way that it works out in your favor.
In keeping with OnDeck’s loyalty incentives, your first loan comes with a 2.5% origination fee of the loan amount. Your second loan drops to a 1.25% origination fee, while your third loan and beyond decreases to anywhere between 1.25% all the way down to 0%.
OnDeck’s Unique Features
A unique feature of OnDeck that you will not find with most other small business lenders is how it is willing to help you improve your business’s financial posture even if it declines your loan application.
OnDeck accomplishes this through a strategic partnership with SCORE. SCORE specializes in financial mentorship for small business owners who could use some advice on how to position their businesses to receive the funding that they need.
In this way, OnDeck seeks to inform you through the educational resources that SCORE offers. You have access to tools such as templates, business articles, advice on technology, and more. SCORE also makes available live webinars as well as workshops based on location.
Most importantly, however, is the mentorship that SCORE provides.
With SCORE mentorship, you work one-on-one with a SCORE mentor to improve your financial standing. Together, you and your SCORE mentor review your business plan and financials, identifying needs and concerns along the way. From there, your SCORE mentor provides suggestions aimed at improving your odds for better business financing.
Score mentors are experienced business professionals who know what it’s like to run their own businesses. With SCORE, you are receiving advice from people who have been in the trenches at some point in their professional lives.
The nice thing about SCORE? OnDeck offers it whether or not you qualify for a business loan. Ideally, if you do not qualify for an OnDeck business loan, utilizing SCORE will help you improve your business and financial decision-making. This, in turn, can help you qualify for a loan the next time you apply.
OnDeck as an Educational Resource
One of the ways that OnDeck moves beyond just being another online lender is in the ways that it tries to help you better understand the loan application process. Rather than simply taking your info and beginning to automatically deduct your repayments, it wants you to be aware of what you’re getting into, in the event that you’ve never applied for a business loan before.
To this end, it has a full page on its website dedicated to helping you understand the ins and outs of small business lending. Various aspects of the process are highlighted and explained in clear, non-technical language.
Commonly used terms are demystified and defined within the small business lending context. This way, you can better comprehend the lingo that might arise during your application and/or repayment, allowing the entire process to run more smoothly by keeping you more informed.
Quality of the OnDeck Website
OnDeck operates a clean interface that can be navigated with ease by even the most novice Internet user. The icons are large, the explanations are clear, and each page is free of clutter. This allows OnDeck to appeal to both experienced, beginner, and time-challenged users.
OnDeck Customer Loyalty Program
With many online loan providers, you pay the same fees for every loan you take out. Unless the health of your business declines or your credit score changes, you can leverage your expectations. You know, more or less, what you will be charged ahead of time.
However, using OnDeck for subsequent loans will save you money on loan costs, including fees. OnDeck likes rewarding repeat business, thereby incentivizing you to come back to it with your small business loan needs.
Restrictions on OnDeck Loans
While OnDeck is an online small business lender that appeals to a broad segment of the small business community, nevertheless, it cannot give loans to certain professions or industries.
Image source: Big Stock
Some examples of the industries to whom OnDeck cannot loan money include:
- credit unions, banks, and mortgage lenders
- bail bonding
- collection agencies
- tax preparation services
- pawn shops
- automobile dealers
- personal trainers
- travel agencies
- religious organizations
- adult entertainment professionals
- firearms and ammunition sales
- and many more
To view a complete list of industries with which OnDeck cannot do business, visit its Restricted Industries page.
OnDeck vs. Competitors
OnDeck touts itself as being up to 50% less expensive than taking out a merchant cash advance. It also claims to be faster in reviewing your application and/or putting the loan money into your pocket when compared to traditional lenders such as banks.
In addition to its speed, OnDeck does other things a little differently versus conventional lending institutions. For example, OnDeck will not just review your credit score when considering your loan application. Instead, it will also review your cash flow, a trait that will assist it in determining your ability to repay your loan amount in a timely and efficient manner.
What this means for you is that even if you have fair or poor credit, but you earn enough income and evidence financial stability, OnDeck will not reject your application out-of-hand.
For some lenders, credit score is the biggest determiner of loan eligibility. Not so with OnDeck. As a result, if you have less-than-ideal credit, you have more loan options with OnDeck than you might with other lenders.
OnDeck offers a host of ways to partner with them and earn commissions on referrals.
The four primary routes to partnering with OnDeck include:
- Distribution Partnerships: Financial advisors and leasing companies, among others, can team with OnDeck to offer its clients OnDeck financing. OnDeck requires distribution partners to fund a minimum of 5 short-term loans per week.
- Platform Solutions: Similar to Kabbage’s innovative platform, OnDeck can make its proprietary technology available to large, finance-based websites or traditional lenders such as banks. Underwriting, onboarding, and system automation are just a few of the advantages to partnering with OnDeck in this way.
- Merchant Referral Program: OnDeck’s referral program is open to anyone with a lead. Simply fill out the appropriate referral form on OnDeck’s website and submit. If the loan is funded, you receive a commission.
- Affiliate Program: Anyone who operates a blog or website can use their web presence to earn commission by referring new customers to OnDeck. OnDeck promises high payouts and other customized tools to its affiliates. Site owners who want to earn commission as an OnDeck affiliate need to sign up with Impact Radius as a Media Partner.
Concerns Over the OnDeck Business Model
While the promises made to small business owners by OnDeck no doubt make the company look extremely attractive, there has been a litany of concerns raised by professional reviewers.
For instance, a 2014 article on Bloomberg.com highlights the shady business practices of many OnDeck third-party brokers. In one case, the owner of an OnDeck-affiliated brokerage had recently been convicted of stock fraud.
Unfortunately, the list of wrongdoing doesn’t stop there. The Bloomberg article notes that many of OnDeck’s brokers have dabbled in illegal activity, such as stock scams, embezzlement, insider trading, drug dealing, and gambling.
The article goes on to point out that the founder of OnDeck, Mitch Jacobs, initially opposed lenders who charged high percentage rates on short-term small business loans. This opposition continued for a few years, at least in writing.
In practice, however, OnDeck was not so opposed to brokers. As proof of this, by 2010, up to 88% of OnDeck loans came from brokerages. Bloomberg mentions that when Jacobs departed the company, in 2012, OnDeck took a much friendlier public tone toward brokerages.
With this in mind, it’s interesting to note that, at one point, CEO Noah Breslow attempted to sell OnDeck to a payday loan startup based out of London. The deal fell through after the two sides could not agree on a price.
Further compounding this series of red flags is the fact that OnDeck pays commission to brokers who bring in customers. Obviously, the conflict-of-interest issues this raises is troubling if you are considering OnDeck for your small business loan needs.
However, the nature of the commissions makes it even worse. The Bloomberg article mentions that OnDeck approves borrowers for loans at one rate while allowing brokers to charge higher rates. The difference is pocketed by the broker, and the borrower is none the wiser.
Examples of small business owners who got duped by OnDeck brokers are provided within the Bloomberg article as well. As so often happens, brokers preyed on these owners unsolicited and convinced them to apply for loans.
After approval, their effective interest rates proved to be exorbitant. Once they fell behind on payments, bankruptcy was their only viable next step.
OnDeck’s Poor Vetting of Brokers
The same Bloomberg article discusses how OnDeck’s policy prohibits unscrupulous practices among their brokers, including stacking fees. OnDeck vows to terminate its relationship with any broker engaging in such practices.
OnDeck also claims to vet their brokers through an array of screening methods. Nevertheless, several brokers with substantial criminal records somehow managed to bypass OnDeck’s vetting procedures. Once inside, they proceeded to earn hefty commissions by pulling in new customers.
OnDeck’s History of Losing Money
By all accounts, OnDeck’s woes do not stop with its sketchy broker affiliations.
The Bloomberg article cited above, as well as another Bloomberg article published two days earlier, both contend that OnDeck has lost more money than it has earned.
For example, in 2013, the company lost $24 million, with another $15 million lost during the first two quarters of 2014. The amount of $15 million is significant given that the company recorded $108 million in revenue during the first three quarters.
Much of this owes to OnDeck’s willingness to pay high commissions to its brokers. Common sense would dictate that a business cannot funnel commissions to third parties on such a grand scale while retaining long-term viability.
If continued, this practice could ultimately prove fatal to the company.
Concerns Over OnDeck’s Operating Costs vs. Customer Savings
The latter Bloomberg article raises yet another concern on top of the already grave list of troubling business practices.
In this case, it involves the decreasing cost of OnDeck’s own borrowing when compared to the unchanging requirements that it places on customers. For example, OnDeck’s rates for borrowing from its investors dropped from 11.6 during the first three quarters of 2013 down to 6.6 through Q3 of 2014.
Yet, despite this drop, at the time of the Bloomberg articles, OnDeck had not amended the rates at which its borrowers were required to repay their loans.
OnDeck and the Better Business Bureau
Despite the severely negative professional reviews, OnDeck enjoys an A+ rating from the Better Business Bureau. It has been accredited with the BBB since 2008.
As of this writing, 27 complaints against OnDeck have been closed within the last three years, with most of the complaints having to do with sales and advertising issues. The next highest concentration of complaints were centered on product or service concerns.
Of the 14 customer reviews left on the BBB website, 9 said that they had positive experiences as opposed to 5 who had negative ones.
Despite this volume of complaints, the BBB notes that OnDeck’s BBB rating has improved over the last three years. This has been due in part to what the BBB views as OnDeck’s good faith attempts to resolve customers’ issues with service, product, and delivery.
Other factors that contribute to OnDeck’s improved BBB score is the company’s tenure, having been in business for nearly a decade. The BBB also weighs the number of complaints lodged against a company of OnDeck’s size.
Whatever legitimate questions have been raised regarding OnDeck’s behind-the-scene business practices and tendency toward extremely high interest rates, they have not largely translated to negative customer reviews.
Most customers who wrote an OnDeck review praise the company for the speed and efficiency of the loan application process. They tend to be very happy with their loan amounts as well.
OnDeck gets high marks for superb customer service, too. Time and again, reviewers highlighted their overwhelmingly positive interactions with customer support personnel. Short wait times, responsiveness, and quick resolutions were all hallmarks of most customers’ experiences.
While plenty of OnDeck reviews left by customers indicated that they were fine with the interest rates assigned to their loans, the prevailing attitude seemed to be one of acceptance rather than enthusiasm.
To be sure, plenty of customers were extremely happy to have their applications approved in the first place. However, a sizable contingent of pleased customers had misgivings about their high rates, but, in light of their immediate need for cash, they accepted the rates and used the money.
The negative reviews, while much fewer in number, still shared common refrains.
Customers complained about the process being drawn out much longer than what was advertised on the OnDeck website. They complained of inconsistency in what they were told by various OnDeck employees. Some noted that there was an inordinate amount of paperwork involved to approve their loans.
Of course, the topic of interest rates made yet another appearance. Customers leaving negative reviews almost unanimously decried what they saw as unnecessarily high rates.
These customers would not recommend OnDeck to anyone in need of a small business loan. Or, at the very least, they urge potential borrowers to research all their options before getting stuck with high rates.
As noted under the OnDeck Repayment Terms section above, most OnDeck loans require weekly or monthly repayment schedules. However, it should be noted that both professional and customer reviews said that certain loans were repaid through automatic daily account withdrawals.
This means that if you take out an OnDeck loan, you may have your bank account debited on a daily basis in order to pay down your OnDeck loan. The professional reviews cautioned that the daily or weekly repayments, combined with unusually high APRs, can easily and quickly expend the bank accounts of small business owners.
Naturally, this can result in the owner falling behind on payments, forfeiting his/her business assets due to OnDeck’s personal guarantee, and even bankruptcy.
What Type of Borrower Is Ideal for OnDeck Loans?
OnDeck is ideal for small business owners who may have no other recourse to obtain fast cash. This includes business owners whose credit may not be as good as it once was or those who have been turned down by traditional lenders.
Given the high nature of their rates, OnDeck works best for small businesses with significant savings or cash flow. Without at least one of these two things, OnDeck’s repayment terms can hinder your repayment ability or considerably reduce your savings in a short amount of time.
Who Should Not Apply for OnDeck Loans?
Borrowers who have excellent credit should obtain financing through a traditional lender or another online small business loan provider. Your chances of being assigned a lower, more manageable interest rate are better with these kinds of lenders. Even if you need cash as soon as possible, you would do well to investigate other online loan portals to ensure that you won’t end up paying more than you need to.
Customers whose cash flow is sufficient but not necessarily vibrant should not apply to OnDeck. The high APRs bring with them the possibility of draining your savings, thereby putting you in the tough position of falling behind on loan payments.
If you make irregular deposits into your business account, chances are good that you will not be approved for an OnDeck loan. However, if you have any doubts as to the long-term consistency of your cash flow—whether due to seasonal work, truant client payments, etc.—then OnDeck is not a good fit. You are better off applying to a lender whose weekly and monthly deposit requirements are not so hard and fast.
Potential borrowers who are concerned with OnDeck’s past business practices might ease their consciences by looking elsewhere. Even if OnDeck purges its roster of all questionable third-party brokers, you might still feel questionable doing business with a company whose reputation carries the weight of such dealings. In that case, you may have less of an ethical dilemma in applying to a different lender.
OnDeck is undoubtedly growing at a steady clip, thanks to an increasing number of new borrowers applying for and being approved for loans in a timely manner that is most convenient for small businesses. Overall, customer reviews laud OnDeck’s customer service, loan approval process, and funding amounts. Many small business owners appreciate how OnDeck has helped their businesses.
However, concerns about OnDeck’s relationships with ill-reputed third-party brokerages cast a long shadow over how the company does business. Such dealings never help but rather tend to erode customer trust and, ultimately, the company’s own solvency.
This ties directly into questions raised by professional reviews regarding just how and if OnDeck can make money. Shelling out money for commissions at the rate with which OnDeck has operated in the past usually forecasts doom for a company’s ability to stay afloat. Time will tell if OnDeck succumbs to this weak link in its system.
If OnDeck corrects these issues, its proprietary lending platform and philosophy are poised to stake out a significant market share well into the future. It already appears to have a firm handle on the customer service side of its business.
If its customer popularity is any indication, aligning and harmonizing the public and private sides of its operations will only keep moving it forward in the burgeoning online small business loan market.
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