A big new bet on small business lending could make things a bit easier for some entrepreneurs looking for cash.
Small business lender (and new Inc. 500 honoree) On Deck announced recently that it had landed nearly $100 million in credit facility commitments, mainly from Goldman Sachs. That new funding will let the lender offer larger loans and more flexible terms, said Noah Breslow, On Deck's chief executive officer.
On Deck has received smaller commitments from Goldman in the past, Breslow said, but the investment banking giant upped its funding after seeing On Deck reach $300 million in loans.
"Small businesses can take comfort in that," Breslow said. "They should feel good about working with On Deck because we have these institutions backing us up."
And while the Goldman bet is a vote of confidence in On Deck, Breslow suggested that he is seeing a boost in broader small business confidence as well. Loan applicants are seeking funding for new equipment and new hires, he pointed out--things associated with expansion--rather than "defensive," stay-afloat funding.
Impact on Lending
On Deck has built up its footprint as an alternative loan provider catering to small business owners that can’t get traditional bank loans; it uses its own algorithm to aggregate and analyze online data--both financial and nonfinancial--to determine whether to approve a loan, and for how much.
A significant portion of On Deck’s funding comes from larger corporations and venture capitalists; On Deck then repackages that funding as loans for small firms.
"This [credit] facility allows us to grow," Breslow said. "We’re improving the quality of our loans."
On Deck’s average loan size had already increased by 15% during the past five months, according to Breslow; he said the new funds would let it make even bigger loans to its clients. The increased funding also gives On Deck more flexibility with loan structure: Borrowers can now choose six-month, nine-month, or 12-month lending options, he said.
Small business owners have already taken note: Breslow noted that applications for On Deck loans have seen a small spike since the announcement a few weeks ago. "That shows optimism in small business owners," he said.
Who Gets Funded
For entrepreneurs seeking funding, Breslow laid out On Deck's three basic lending criteria. Qualifying small business must:
- Make at least $100,000 in revenue a year.
- Have been in business for at least one year.
- Maintain a separate bank account for the small business.
"We really try not to bias our decisions around any particular industry," Breslow said. "What we really need is a fully functioning business."