on deck capital
On Deck

With $275M In Capital Deployed To Main Street Businesses, On Deck Raises $100M Of Its Own

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We make a lot of noise about the venture capital and angel funding startups raise to help grow their businesses. But there are a lot of mom-and-pop shops out there that don’t qualify for venture funding from top firms. Instead, the country’s small businesses typically to turn to negotiating with banks for loans, which can be a headache to secure.

These SMBs don’t have finance departments or the experience to nail the lengthy, 14-item loan packages that would make them attractive to lenders. On Deck Capital launched in 2006 to give these small businesses a capital lifeline. Using a blend of data aggregation and ePayment technology, the company aims to simplify the borrowing process for Main Street businesses.

So far, it’s been working. To date, the founders tell us, On Deck has doled out $275 million in capital to SMBs and expects to cross $300 million early next month. What’s more, loan originations have increased by 50 percent in just the last four months. The company has taken off since raising $19 million in Series C last year, a round which brought its own capital backing to $38 million from investors like Contour Venture Partners, First Round Capital, Khosla Ventures, RRE and Village Ventures.

But in order to make an impact lending at a truly national scale, On Deck has been on a mission to beef up its own capital reserves. This week the company’s lending capacity increased nearly three-fold, as On Deck secured nearly $100 million in new debt commitments, which includes an $80 million credit facility led by Goldman Sachs and Fortress Credit Crop as well as $17 million in venture debt loans from SF Capital and Lighthouse Capital Partners.

Whether or not one believes government policy is handicapping the growth of small businesses, access to capital remains a big problem for Main Street mom-and-pops. On Deck believes that this is largely because banks treat business loans in the same way they do personal loans, using the founder or business owner’s personal credit score as the main criteria in evaluating the business’ creditworthiness. Treating SMBs as individual borrowers as opposed to evaluating the credit potential of the business itself, often leads to rejection or owners only being able to raise a portion of the money they need to grow their business.

So, On Deck created a proprietary tech platform that focuses on business performance rather than personal credit that gives banks a whole new set of principles and standards by which they can vet the credit potential of SMBs. On Deck’s software investigates data points like how many customers the business has, cash flow, sales, registered complaints and assigns what is a essentially a “Business Credit Score” that measures the business’ ability to repay its loans.

The platform enables businesses to create merchant profiles, linking to electronic data sources like online banking, accounting and merchant processing, while aggregating social, tax and industry data. This gives banks access to the business’ financial profile, saving them from collecting the data themselves or relying on personal credit scores.

The U.S. is home to over 5 million businesses with 25 employees or less, a segment of the economy it relies on for 40 percent of its jobs. With a $100 million boost to its lending capacity, On Deck now has the firepower to ensure this underserved market has the capital it needs to help create jobs and keep SMBs chugging along.

More on On Deck at home here.