OnDeck sharply curtails lending as delinquencies mount

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OnDeck Capital became the latest lender to report a hefty quarterly loss, as the coronavirus crisis resulted in a flood of missed payments by its small-business borrowers.

The New York-based company, which typically focuses largely on businesses that are unable to obtain credit from banks, also said Thursday that it has dramtically reduced its loan originations in the second quarter, which began April 1.

OnDeck's "top focus is liquidity and capital preservation,” said CEO Noah Breslow.
OnDeck's "top focus is liquidity and capital preservation,” said CEO Noah Breslow.

OnDeck lost $59 million between January and March, ending a streak of seven consecutive quarters of profitability. The online lender’s results were hurt by a $55 million increase since Dec. 31 in its allowance for credit losses.

Although the first-quarter results did not reflect the most recent economic fallout from the pandemic, newer data from OnDeck shed additional light on the crisis’ dramatic impact on many U.S. small businesses.

At the end of 2019, 11% of OnDeck’s loans were in some stage of delinquency. By March 31, that metric had risen to 27%, largely because of a big increase in the percentage of loans that were between one and 14 days past due. By the end of April, approximately 45% of OnDeck’s loans were in some stage of delinquency.

Chief Risk Officer Nick Brown said that roughly 40% of OnDeck customers who are currently delinquent have made a partial payment in the last seven days.

OnDeck plans to reduce its loan origination volume by more than 80% in the second quarter, though the firm is facilitating applications for government-backed loans as part of the Paycheck Protection Program.

As the company focuses on improving its cash flow and mitigating risks, it has suspended new loan originations to certain industries, restricted draws on certain lines of credit and tightened its underwriting standards, according to CEO Noah Breslow.

“Internally, our top focus is liquidity and capital preservation,” Breslow said.

As a nonbank lender, OnDeck relies on wholesale funding markets. The company said Thursday that it is working with its existing lenders to amend its debt facilities.

OnDeck also disclosed that it is pausing its effort, announced last year, to obtain a bank charter.

OnDeck is taking a number of actions to reduce its operating expenses by 25% between the first and second quarters, according to its CEO.

Among those steps: placing 30% of employees on part-time or furlough status and reducing salaries for full-time workers by 15%. Breslow is taking a 30% pay cut.

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