OnDeck provides consumers speed, convenience and looser qualifications than they’d encounter at a bank. But the online business lender might also charge a higher annual percentage rate, which is the loan’s true yearly cost with all fees and interest included.
The lender has issued more than $5 billion in loans to businesses in 700 industries across the U.S., Canada and Australia since launching in 2007. OnDeck works with small businesses that have annual revenue from $100,000 to $5 million, which includes doctors, dentists, restaurants, auto body shops and beauty salons. Although the lender works with most types of businesses, here’s a list of businesses it won’t work with, including pawn shops and funeral services.
OnDeck has long appealed to small-business owners with bad credit, but they 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 in 2015, 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.
However, applicants should note the majority of its borrowers have scores of 660 and higher, according to the company. Typical gross revenue exceeds $450,000, while median time in business for OnDeck borrowers is seven years.
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 past few years as its costs to acquire and underwrite customers have fallen and it has moved to appeal to a wider range of borrowers. But the company’s rates are still well above those of traditional bank loans, which typically charge less than 10% APR — though bank loans do take much longer to get and come with stricter requirements.
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.
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.
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.
You're ready to get your new business off the ground and may already have discovered that finding financing can be a challenge. We've rounded up some strategies to help you get your company launched.
Because you have strong personal credit, you could qualify for a line of credit through BlueVine or OnDeck that would help you meet daily expenses and maintain inventory. If you’ve been in business at least nine months and have at least $75,000 in annual revenue, consider OnDeck, whose maximum APR is lower than BlueVine’s. If your annual revenue starts at $60,000, BlueVine is a better bet. BlueVine also offers invoice factoring, a type of financing that advances you cash based on your unpaid customer invoices.
Microloans and personal loans are good options to finance your inventory and daily expenses if you’re an established business but make less than $25,000 in revenue. Microloans through nonprofits and the SBA usually have low APR and manageable payment terms, but you'd have to deal with stringent requirements. Personal loans are easier to access, but the APR can be higher than with microloans.
For personal loans:
With strong personal credit and an established business, you may be eligible for an SBA loan, which offers low APRs and longer terms. SmartBiz is a good option if you have at least $50,000 in annual revenue. For smaller loans (under $100,000) and less stringent requirements, StreetShares offers a line of credit, a good alternative, especially for military veterans. You need $25,000 in annual revenue to qualify for StreetShares.
For established businesses making more than $50,000 annually, SmartBiz and Fundation are solid choices. Both offer term loans with APR starting in the single digits. If you want the lowest rates and longer repayment terms, SmartBiz is the best option because it offers SBA loans. If you have more than three employees, at least $100,000 in annual sales and want funding fast, consider Fundation.
For established businesses with annual sales of $150,000 or more, SmartBiz and Funding Circle offer good financing options. You’ll get lower APRs with SmartBiz, which offers SBA loans, but Funding Circle has a less rigorous and shorter application process. Funding Circle also has a higher maximum loan amount of $500,000 compared with SmartBiz's $350,000.
For young businesses that deal with a lot of customer invoices, consider taking a cash advance against those outstanding receivables. Both BlueVine and Fundbox offer the financing option commonly known as invoice factoring. If you have at least $120,000 in annual revenue, BlueVine offers up to 85% of your total invoices, up to $2 million. Fundbox does not require a minimum revenue amount, but you must have at least six months of activity with a compatible online accounting software such as QuickBooks. Fundbox advances you 100% of your total invoice but only up to $100,000.
Because your personal credit score is in the 600s, you may qualify for a line of credit from BlueVine or OnDeck to help meet daily expenses and maintain inventory. OnDeck offers a higher credit limit and lower APRs than BlueVine. For businesses with at least nine months in operation and $75,000 in annual revenue, OnDeck is a good option. If you have less time in business and less revenue, consider BlueVine.
Because you deal with a lot of unpaid customer invoices, consider BlueVine and Fundbox financing to help meet everyday expenses. They each provide a cash advance against outstanding invoices. BlueVine has a higher cash-advance cap of $2 million, compared with Fundbox’s $100,000. BlueVine is a good bet if you have at least $120,000 in annual revenue and your customers have strong credit. If you’re a young business with limited revenue, consider Fundbox, which does not require a minimum revenue or personal credit score. You must, however, have at least six months of activity in an online accounting software such as QuickBooks to qualify for Fundbox.
OnDeck and Kabbage are good options when you need cash for everyday expenses and inventory but your personal credit score still needs some work. If you have at least $100,000 in annual revenue and a personal credit score of 500 or more, you may qualify for OnDeck’s term loan. For businesses with lower revenue, consider Kabbage, which also does not require a minimum personal credit score. You’ll get high APRs with both lenders. You should turn to these options mainly for short-term needs or emergencies and only if you're sure you have the cash flow to cover the financing costs.
Because you're just starting out and your personal credit score is below 600, your best bet is microloans through nonprofit lenders or the U.S. Small Business Administration. The downside is these are "micro" amounts of money, usually no more than $50,000. However, many microlenders help businesses grow and establish better credit. SBA microloans generally have an APR of 8% to 8.5% and manageable repayment terms. Successfully repaying microloans will boost your credit score and make you eligible for bigger financing.
When you have strong personal credit and a young business with a lot of unpaid customer invoices, BlueVine and Fundbox are good financing options. Both offer invoice factoring at similar costs. Where they differ: minimum revenue and minimum credit score. With BlueVine, you need at least $120,000 in revenue and a minimum 530 personal credit score. Fundbox does not require a minimum revenue or credit score; the lender does require at least six months of activity in a compatible online accounting software.
As a young entrepreneur with strong personal credit, you may find it easier to qualify for a line of credit than a term loan. If you have $75,000 in annual revenue and at least nine months in business, OnDeck offers a business line of credit of up to $100,000. Personal loans and business credit cards are also decent options for startups because approval is based on personal credit score rather than business history. The amount you can finance is typically smaller than with a term loan, however, and you need good credit to qualify. Keep in mind that failure to repay can ruin your personal credit.
For personal loans:
For business credit cards:
Because you have strong credit but your revenue doesn’t quite meet the requirements of most online lenders, consider Fundbox or a business credit card. Business credit cards are a solid option for ongoing working capital and provide quick access to cash, spending rewards and sign-up bonuses. If your business has unpaid customer invoices, you can take a cash advance against those invoices through Fundbox, although you’ll likely pay a higher APR than you would with a business credit card.
For business credit cards:
For young businesses building revenue, StreetShares is a good bet for financing new equipment or an expansion. Your strong personal credit and revenue of at least $25,000 qualify you for the lender, which serves a variety of borrowers but is an especially good option for U.S. military veterans.
With a strong personal credit score and at least one year in business, you can turn to StreetShares and OnDeck for equipment and expansion financing. StreetShares is better if you’re seeking a smaller amount of financing: You just need $25,000 in annual revenue to qualify for its term loan, which maxes out at $100,000. If you have at least $100,000 in revenue, OnDeck, with loans up to $500,000, is better suited for more mature businesses seeking larger amounts of financing.
Since you have strong personal credit but are still building revenue, you can turn to microloans or personal loans for financing. Microloans are designed especially to help underserved entrepreneurs launch and grow their businesses, but the loans are small and can carry APRs in the low teens. With strong credit, personal loans are another option, but funding typically tops out at $35,000.
For personal loans:
SmartBiz and StreetShares are good options for entrepreneurs with strong personal credit and established businesses. SmartBiz provides SBA loans with the lowest APR and longest repayment terms among online lenders. But since it’s an SBA loan, the application process will involve a lot of documents. If you want funding faster, StreetShares is an alternative. StreetShares, however, has a maximum borrowing limit of $100,000, a higher APR and shorter repayment terms than SmartBiz.
With your strong personal credit and steady revenue, Lending Club, SmartBiz and OnDeck are good choices for expansion or refinancing. If you want the lowest rates, consider SmartBiz, which provides SBA loans. For big investments, OnDeck has the highest loan limit -- $500,000 -- but the loans will likely cost you more. Lending Club is a middle-ground option, with lower APR than OnDeck and easier qualifications than SmartBiz.
Since your business is established and your revenue is solid, Funding Circle, SmartBiz and Fundation are good financing options. SmartBiz, with loans up to $350,000, has low-rate SBA loans, but the application and funding process can take several weeks to a few months. If you want funding quicker, Funding Circle and Fundation are alternatives; plus, they provide financing up to $500,000.
Since you've been in business more than a year and have decent credit, you may qualify for funding from StreetShares or OnDeck. If you have at least $25,000 in revenue, StreetShares offers a loan or line of credit up to $100,000. If you want more funding, OnDeck has term loans of up to $500,000. OnDeck’s loans, however, can be costlier, with APRs as high as 98%; StreetShares’ funding has a maximum 40% APR.
Since you have unpaid customer invoices, you can turn to BlueVine and Fundbox for a cash advance against those receivables. BlueVine is a good choice if you have credit-strong clients and large outstanding payments up to $2 million. If you’re looking to finance a smaller amount, Fundbox covers 100% of your unpaid invoices up to $100,000. To qualify, you need at least six months of activity in a compatible online accounting software such as QuickBooks.
Since your new company earns less than $25,000, microloans and personal loans are good options for necessary capital. Microloans through nonprofits and the SBA usually have low APRs and manageable payment terms. If your credit is in the high 600s, you can opt for a personal loan, though they often aren't available for more than $35,000 and tend to come with higher APRs than microloans.
For personal loans:
If your company is on track to make more than $25,000 in annual revenue but you’ve been open less than a year, you can turn to microloans and personal loans for financing. Microloans come in small amounts and have low APRs and manageable repayment terms. If your credit is in the high 600s, you can opt for a personal loan, though they often aren't available for more than $35,000.
For personal loans:
A term loan is ideal for expansion and buying equipment, so consider StreetShares if you have at least $100,000 in revenue and six months in business. For young businesses, however, it may be easier to qualify for a line of credit. If your company makes at least $75,000 in annual sales and has been operating for at least nine months, OnDeck is a good option. For businesses that are younger and have less revenue, BlueVine is a better bet. If borrowing costs are important to you, OnDeck offers lower APRs than BlueVine.
For newer businesses with steady revenue, a term loan from StreetShares and a line of credit from OnDeck are good options, depending on your sales level. If you have at least $100,000 in revenue and have been in business six months or more, you can qualify for StreetShares. On the other hand, if your business generates less revenue but has been in business for at least nine months, OnDeck is a better option.
Since your business has steady revenue and has been operating for more than a year, consider OnDeck and Kabbage. If your personal credit score is at least 500, OnDeck offers term loans up to $500,000, which is an attractive option for large expansion projects or buying expensive equipment. If you’re looking for short-term financing or need a smaller amount, consider Kabbage, which does not require a minimum credit score. Kabbage offers only six- or 12-month financing of up to $100,000 at high borrowing costs.
Since you have unpaid customer invoices, you can turn to BlueVine and Fundbox for a cash advance against those receivables. If you make at least $120,000 in annual revenue, BlueVine will cover 85% of invoices up to $2 million. BlueVine is a good choice if you have credit-strong clients and large outstanding payments. If you’re looking to finance a smaller amount, Fundbox covers 100% of your unpaid invoices up to $100,000. To qualify, you need at least six months of activity in a compatible online accounting software such as QuickBooks.
Because you're just starting out and your personal credit score is below 600, your best bet is microloans through nonprofit lenders or the Small Business Administration. The downside is that these are "micro" amounts of money, usually no more than $50,000. Many microlenders, however, help businesses grow and establish better credit. SBA microloans generally have APRs of 8% to 8.5% with manageable repayment terms. Successfully repaying microloans will boost your credit score and make you eligible for bigger financing.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.Updated Jan. 26, 2016.