OnDeck, an alternative lending company that provides working capital and loans to small businesses, has raised $77 million in a growth investment round led by Tiger Global Management with participation from existing investors Institutional Venture Partners, RRE Ventures, SAP Ventures, Google Ventures, First Round Capital and Peter Thiel. OnDeck has now raised a total of $180 million in equity and over $300 million in debt financing, led by Goldman, Deutsche and Key Bank.
The company also announced it will hit the $1 billion mark in total capital deployed to small businesses by mid-March.
Similar to the way Prosper and Lending Club have provided an alternative for people to get loans, OnDeck is offering a way for small businesses who wouldn’t normally be considered for a loan to receive capital. OnDeck can make a lending decision within minutes, and fund within a day (vs. traditional lenders that often take weeks, even months just to gives businesses a decision).
Small businesses often turn to banks when looking for business loans, but traditionally, banks have relied on personal credit scores to evaluate the creditworthiness of their business. While business owners may have perfectly legitimate, high-growth businesses in the making, they don’t always have the kind of personal credit scores that make them attractive borrowers for banks for these large loans.
Noah Breslow, CEO of OnDeck, tells us the average loan size is $40,000, but OnDeck can loan as much as $250,000. Typical loan times are 3-24 months, so these are short-term loans. The company’s secret sauce, he explains is the alternative FICO-like score it creates for each business who applies–interest rates and acceptance is based on this score. What’s different about the score, however, is the actual data OnDeck is pulling in to evaluate. The proprietary credit models look deeper into the health of businesses (i.e. revenue, repeat customers), focusing on overall business performance, rather than the owner’s personal credit history.
Clearly there is a need for this type of lending, and small businesses are being underserved. Tens of thousands of businesses across 725 different industries have taken loans from OnDeck. And the company grew 150% in 2013, we’re told.
It’s important to note that the entire alternative lending space as a whole is growing fast.
Companies who are tackling peer-to-peer lending on the consumer side like Prosper and Lending Club are likely IPO candidates (and are moving into providing small businesses with loans as well) Payday loan companies like LendUp and ZestFinance are doing well in their respective areas. And OnDeck’s closest competitor, CAN Capital, also just raised a big round of funding as well. Additionally, Kabbage offers merchants with working capital, and Square is experimenting with this as well.
Breslow acknowledges this competition but also believes that the space is large, and there is room for a multitude of players as finance and lending continues to be disrupted. And, he adds, that the traditional lenders like banks, are actually partnering with OnDeck.
We’re told OnDeck will use the funds to accelerate new product development, geographic expansion, marketing and hiring. As for a potential IPO, Breslow says the company is trying to install the discipline of potentially being a public company but it isn’t the focus for now.
“Right now my goal is to power all the small business loans in America,” he said.