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August 23, 2016
Understanding the New
Landscape of Business Lending
Why Do Accountants Need to Understand
the Lender Landscape?
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Over 250,000 small businesses are expected to take online or
alternative loans this year
The cost of financing varies from lender to lender, it’s confusing,
and the wrong financing can hurt your client’s viability
There are a lot of new loan products available online
You are in an important position to advise and counsel your
small business clients
The World of Small Business Financing
Has Changed
3
There Are New Options to the Bank
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Non-Bank Lenders Deliver $Billions:OnDeck $4+ BillionPayPal $1+ BillionGoFundMe $2+ Billion
Why Did This Happen?
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Searching for capital has
historically been a
challenge for many
business owners
• A time consuming process
• Stringent credit requirements
• Limited credit choices
• Rigid collateral requirements
The Traditional Lending Process
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Offline, Paperwork
Manual Review
Several Days
Bank Process:
1 Source: Small business survey conducted by the Federal Reserve Bank of New York
FundApproveApply
26 Hours1 Weeks - Months Several DaysBank
Timeline:
Add up the time it takes away from a business owner
Traditional Financing Options Just
Don’t Work for Everyone
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• Banks like to make $5 million loans, not $50,000 loans
• Banks rely on manual, time consuming processes that make it difficult to give business owners quick answers
• Credit criteria focuses on personal credit score and collateral
Which Means, this Business
Likely Wouldn’t Get Funded
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Local Restaurant
In Business for 3 Years
680 Personal Credit Score
$750,000 Annual Revenues
$80,000 in Net Profits
Has No Collateral
Typical Qualification Requirements
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Online Lenders
1 Year in Business
600+ Personal Credit Score
$100,000 in Annual Revenue
Traditional Lenders
5+ Years in Business
700+ Personal Credit Score
$1 Million in Annual Revenue
Collateral
Typical Documentation Requirements
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1. SSN
2. Business Tax ID
3. Personal and Business
Details
Sometimes RequiredAlways Required
For Online Lenders
1. 3 - 6 months of bank statements
2. Tax returns
3. Form 8821
4. Verification of lease
5. Report of outstanding business
loans
6. YTD financial statements
The Good News…
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are creating new financing options
Business Owner Needs Technology+
Industries Being Disrupted by Online Platforms
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Then Now
Retail banks and
credit card companiesCapital Sources
“Brick and Mortar” storesRetail
Brokers and classified adsReal estate
Checks, cash and high card feesPayments
Traditional travel agenciesTravel
Financing is Finally Being Transformed
14
Then
Traditional Lenders
• Long application process
• Significant paperwork
• Personal credit score-based evaluation
• Lend larger amounts
• Often require very specific, high value
collateral
Now
Online Lenders
Short application process
Less paperwork requirements
Data-driven approach
Lend smaller amounts
Can work with younger businesses
Often require blanket lien on entire
business but not specific collateral
What Our Customers Value
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Start Funding
1 Day
Speed ServiceAccess Cost
New Financing Options
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Loan Matching Site
Crowdfunding Invoice Financing
Online Lending
Non-Profit Lenders
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Needs
$40,000
Visits Crowdfundingsite and posts business idea
A network of individuals pool
their moneyto support thesmall business
efforts
Crowdfunding
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A business partners with a non-profit lender
for micro- and small business loans
Non-Profit Lenders
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A business sells its accounts receivable
to a third party
Invoice Financing
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Needs
$40,000
Visits Matching Siteto find lender
Matching Sitefilters info and suggests best
lending options
Loan Matching Site
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Online Business Loans
• Short applications that don’t
require an in-person meeting
• Faster approvals than typical
banks
• End-to-end process in as fast
as 24 hours
How it Works:
Online
Apply
Review
Approve
1 day – 2 weeks
Fund
24 Hours – 2 weeks
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Online Business Loans
Short-Term and Long-Term Loans
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Short Term Needs Long Term Needs
Short-Term Loans
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Short Term Loans could be a good fit for:
Buying quick-turnaround inventory
Ramping up a new employee
Bridging a seasonal cash flow gap
Short Term Loans allow a borrower to:
Borrow with a term suited for their loan purpose
Meet the need
Pay off the debt quickly
Long-Term Loans
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Long Term Loans could be a good fit for:
Purchasing a new warehouse or other building
Covering the expense of adding a new location
Purchasing heavy equipment
Long Term Loans allow a borrower to:
Meet a longer-term need with a term suited for
that loan purpose
Spread the cost of expensive purchases over
several years
As a General Rule
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The longer the term,
the smaller the periodic payment—
but the greater the overall cost of the loan.
Shorter-term loans
typically have a lower overall cost—
but the periodic payments will be higher.
Approval and Capital Access Dynamic
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CO
ST
CAPITAL ACCESS
Banks
Factoring
Online Loans
Merchant Cash Advance
Which Would You Prefer?
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%37.5% APR
or
15.5% APR
Which Would You Prefer?
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%37.5% APR vs.
15.5% APR $$700 interest costvs.
$3,500 interest cost
It Depends
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$10,000 Borrowed
over 6 months
Year 1 Year 2 Year 3 Year 4
$4,800 interest cost
37.5% APR
$10,000 Borrowed
over 4 years
$700 interest cost
It Depends
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$10,000 Borrowed
over 6 months
Year 1 Year 2 Year 3 Year 4
$3,500 interest cost / lower periodic payments
37.5% APR
$10,000 Borrowed
over 4 years 15.5% APR
$700 interest cost /
higher periodic
payments
A Common Tale:
An Online Business Loan in 24 Hours
(After spending 40 hours, collecting information and applying, over a month at the local bank)
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A month to “No” A quick “Yes”—in this case it was 20 minutes
Choosing the Right Loan
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Loan Matching Site
Crowdfunding Invoice Financing
Online Lending
Non-Profit Lenders
It Starts with Loan Purpose
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Does this interest rate make sense for my
loan purpose?
Does the overall cost of this loan
make sense for my loan purpose?
%
Understanding loan purpose
compels us to ask:
It Starts with Loan Purpose
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Nobody would buy a new car with a
30-year home mortgage, regardless of
how low the APR.
It would make the overall cost of the car
too expensive.
Loan Purpose Should Dictate Loan Amount
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There are costs associated with borrowing—
Borrowing more than needed is
just too expensive
Lenders appreciate borrowers
who know what they really need
Loan Amount Influences Where to Look
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Non-Profit
Micro-lenders
Loan Matching SitesOnline LendersBanks and
Credit Unions
The SBA
SBA
Good Fit for Online Small Business Loans
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Pizzeria’s oven breaks down.
Needs to replace ovens
immediately.
Needs $25,000
Florist is gearing up for
Mother’s Day and needs to
stock up on inventory and
supplies.
Needs $15,000
Restaurant needs financing to
remodel and redecorate its
existing space.
Needs $150,000
Good Fit for a Business Loan at the Bank
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Manufacturer needs to
purchase new heavy
equipment
Needs $400,000
A doctor wants to buy out her
partner’s 50% stake in the
practice.
Needs $700,000
Restaurant is looking to move
to a better location downtown.
Needs $1,000,000
Capital Needs and Considerations
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Amount
Duration
Return
Cash flow
Buy inventory Purchase equipment
MarketingHiring Open new locations
Cash flow management New business idea
Loan Repayment
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Monthly
Traditional Lenders
Weekly Daily
Online Lenders
Payment varies based on company, product, and risk level
A Four Questions Checklist
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What types of financing can your client qualify for?
Which is the best fit for my client’s business?
How much does my client really need?
Does my client have the information they need?
1
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3
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About OnDeck
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OnDeck Overview
• Publicly listed company (ONDK on NYSE)
• Direct lender 100% focused on improving
and enhancing SMB capital access
Loans in all 50 States,
US, Canada & Australia
A+ BBB Rating
New
Established
Premium
Complete Credit Solution Fast & Simple ProcessDedicated Point of
Contact
Our Products
• Term Loans from $5,000 – $500,000
– 3 to 36 month terms
– Rates starting at 5.99% AIR
• Lines of Credit up to $100,000
– Revolving term
– Rates starting at 13.99% APROver $4 billion funded
to small businesses
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Questions?
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OnDeck’s educational website,
dedicated to simplifying small business lending
For more information about the world of online lending, visit:
