Leading Online Small-Business Lenders Mount Growth Push
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Four of the largest online small-business lenders — OnDeck Capital, Kabbage, Funding Circle and Lending Club — are taking new steps to juice growth.
OnDeck said Wednesday that it is doubling its maximum loan size, while Kabbage unveiled a new lending partnership with a big bank. Also within the last week, Funding Circle announced an acquisition that will allow the company to expand into continental Europe, and Lending Club unveiled a new line of credit for small-business owners.
The expansionary moves show the emphasis that industry leaders are placing on rapid growth, in order to achieve operating scale at a time when new competitors continue to enter the market.
New York-based OnDeck announced that it will make new term loans to business owners of up to 36 months and $500,000. The previous limits were 24 months and $250,000. OnDeck also raised the upper limit on its line of credit from $20,000 to $100,000.
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Chief Executive Noah Breslow said that the larger loan amounts will allow his company, which has traditionally lent to small businesses that do not have a lot of other financing options, to better compete against banks.
“There’s no doubt that these are the most bank-like terms we’ve ever offered,” he said.
Breslow hopes that the larger loans will persuade growing small businesses that are OnDeck customers to stay with the company, rather than switching to a bank when they become more creditworthy.
“There’s really no reason someone couldn’t stay with us, at this point, for a five- or 10-year journey as they grow their business,” he said.
OnDeck, which has lent more than $3 billion to small businesses over the last eight years, is taking steps to boost loan volume at a time when the company’s fast growth has slowed.
During the second quarter, loan originations were up 69% from the same period a year earlier. Six months earlier, OnDeck reported year-over-year growth in loan originations of 120%. Since OnDeck’s initial public offering in December, the company’s share price has lost more than 50% of its value.
Breslow expressed confidence that OnDeck can manage the risks associated with the bigger loans, arguing the firm has made improvements to its proprietary credit-scoring model. At the end of the second quarter, 8% of OnDeck’s loans were at least 15 days past due, which was up from 6.1% a year earlier.
Atlanta-based Kabbage, meanwhile, is looking outside of the U.S. in pursuit of growth. The privately held company announced Wednesday that the Dutch bank ING, which is an investor in Kabbage, will use the U.S. firm’s online platform to lend to small businesses in Spain. There are future plans to expand the partnership to other countries.
Kabbage is seeking to license its technology platform to financial institutions globally, and it is having more success overseas than it is in the U.S., head of operations Kathryn Petralia said in a recent interview.
“We are incredibly proud of our partnership with ING, one of the most innovative banks with whom we have worked,” Kabbage CEO Rob Frohwein said in a press release Wednesday.
Funding Circle, a marketplace lender that started in the U.K. but now does about 30% of its business in the U.S., is also eyeing growth opportunities in Europe. The company announced this week that it is expanding into Germany, Spain and the Netherlands with the acquisition of a German firm called Zencap. Terms of the deal were not disclosed.
Zencap, which has lent more than $39 million to approximately 520 businesses over the last 18 months, will adopt the Funding Circle brand, according to a press release announcing the acquisition.
“Our vision is to help millions of businesses across the world sidestep the outdated and inefficient banking system and borrow from investors. Today’s news is the next exciting stage of this journey,” Funding Circle CEO Samir Desai said in the press release.
Finally, San Francisco-based Lending Club, which is better known for its consumer loans than its small-business offerings, announced last week that it is rolling out a line of credit of up to $300,000 for small businesses. The company launched its term loan for small businesses last year.
Lending Club has seen its loan growth ebb in recent quarters, but not to the same extent that OnDeck has. Lending Club said that the line of credit would provide a new option for business owners who want to be able to borrow over time in gradual increments, as their financing needs become clearer.