OnDeck Capital's hugely successful public offering on Wednesday was another feather in the cap of the alternative lending industry. In recent weeks, investors witnessed the meteoric debut of peer-to-peer financier Lending Club, which raised close to $1 billion from the public markets.

But to hear OnDeck's CEO Noah Breslow tell it, that company's IPO successes are chiefly the result of its innovative technology, as well as provisions of the Jumpstart Our Business Startups (JOBS) Act. According to that law, businesses with less than $1 billion in annual sales are able to file their offerings confidentially and more quickly.

OnDeck, an Inc. 5000 company, has carved out a niche for itself, making loans to small businesses that have a hard time qualifying for traditional bank credit.

"The JOBS Act lets you do non-deal road shows, and in September we gave many investors in the IPO an introduction to OnDeck," Breslow says. He adds that during the actual road show in November, OnDeck was able to have more productive conversations, because it had already covered the basics.

Not So Secret Weapon

Since 2012, 85 percent of startups and emerging companies that went public did so using the confidential process, according to Ernst & Young, the auditing and professional services company. Perhaps the best-known of this lot is Twitter, which was able to postpone revealing its history of significant losses until just a few weeks before it went public.

The confidential filing process also gives smaller companies important flexibility, for instance in their ability to cancel or postpone an IPO. Cloud storage company Box, also an Inc. 5000 company headed up by Aaron Levie, similarly filed confidentially, but backed away from its offering due to a swoon in technology stocks this spring. It has since raised $150 million in financing from hedge funds and private equity sources.

As for OnDeck, investors excitedly bid its stock price up nearly 40 percent from an opening price of $20 on the first day of trading, to close at $27.81. (By late Thursday afternoon, however, its share price had fallen more than 7 percent to $25.93.) In total, OnDeck raised about $200 million from the exit.

Founded in 2007 by Mitch Jacobs, OnDeck has grown its revenue in the past two years to $107 million for the nine months ended September 30, 2014, according to its S-1 filing with the Securities and Exchange Commission. It has originated $1.7 billion in loans for 25,000 small business customers.

Although the company reported profit of $354,000 for the three months ended September 30, 2014, for the full year 2013, OnDeck's net loss increased 45 percent to $24 million compared to the full year 2012.

In its SEC filing, OnDeck described its market this way:

According to the FDIC, there were $178 billion in business loan balances under $250,000 in the United States in the second quarter of 2014, across 21.7 million loans. Oliver Wyman, a management consulting firm and business unit of Marsh & McLennan, estimates that there is a potential $80 to $120 billion in unmet demand for small business lines of credit, and we believe that there is also substantial unmet demand for other credit-related products, including term loans. We also believe that the application of our technology to credit assessment can stimulate additional demand for our products and expand the total addressable market for small business credit.

OnDeck, which competes with other alternative lenders that service small business borrowers online including Kabbage and Biz2Credit, currently captures only 1 percent of this market, Breslow says. It plans to use innovative technology to expand its customer base, he adds.

Behind the Boom

Such technology, observers say, is what's driving the successful IPOs in alternative finance.

"The financial services sector in general, and more specifically in business and consumer lending, is enormously ripe for disrupting," Dan Ciporin, a general partner at Canaan Partners, an early investor in Lending Club, told Inc. in an interview from November about OnDeck.

In contrast to the slow, paper-bound process of traditional banks, which can take weeks to make loan decisions, OnDeck's loan application process is purely online, giving owners decisions on financing of up to $25,000 within minutes. Larger loans--of up to $250,000--can be reviewed within two hours.

To achieve such rapidity, OnDeck relies on a proprietary decision-making engine that scores potential loan candidates according to 100 different data sources, which could include things like rental information and payroll and checking account data.

OnDeck also finances its loans in a manner that's different from lenders like Lending Club, which operates more as a marketplace that lets individuals make loans to others who typically want to refinance more expensive debt. By contrast, OnDeck uses three sources of funding, including selling loans on the secondary market, warehouse credit lines from banks, and a marketplace approach that lets institutional investors fund loans.

What's Ahead

If anything, some critics have called OnDeck out for the high interest rates it charges for loans, which can range from 30 percent to nearly twice that amount.

"Over time, with greater public scrutiny of the business model, there might be an overall lowering of interest rates, which is great for economy overall," says Rory Eakin, co-founder and chief operating officer of CircleUp, the crowdfunding platform.

In fact, Breslow says interest rates have already dropped about 20 percent over the last year and half, as the cost of customer acquisition has come down, along with the cost of capital. And Breslow says he expects those trends to continue as the company continues to expand.

"There's plenty of room to grow, with other credit products and in other geographies," Breslow says.