By Rieva Lesonsky for Fundera Ledger,
If you’re a small business owner trying to secure a small business loan, the good news is you have more options available to you than ever before. In fact, sometimes you might feel as if you have so many choices, it’s hard to determine the best source of financing. In this article, I’ll try to help out by taking a closer look at two very popular alternative financing sources, Kabbage and OnDeck, and when it comes to Kabbage vs. OnDeck, how they differ.
The Alternative Lending Difference
In comparing Kabbage vs. OnDeck, it’s important to note a few key characteristics both lending sources share that differentiate them from traditional bank loans.
- Less paperwork. Compared to business bank loans, both Kabbage and OnDeck have far easier application processes with little documentation required.
- Personal credit scores. Both Kabbage and OnDeck focus on your personal credit score, as opposed to your business credit score, which can be helpful if your business credit score is less than perfect or if you haven’t built up much of a history yet.
- Minimal time in business. You can obtain financing from both Kabbage and OnDeck with much less time in business than is required for most bank loans.
- Cash flow requirements. Both Kabbage and OnDeck focus more on your business’s cash flow and revenues than on documentation, history or credit scores. Like any financing source, they want to feel confident you can pay back the money they lend you. Unlike traditional bank loan applications, however, you won’t need to create financial projections.
Alternative financing sources such as Kabbage and OnDeck provide a way to obtain financing for small businesses that often can’t get traditional bank loans.
OnDeck Capital is a pioneer in the alternative lending industry; it was founded in 2007. The company prides itself on providing large amounts of capital, fast approval and rapid funding. Since launching, OnDeck has provided over $2 billion in financing to companies in more than 700 industries. (There are a few industries it won’t finance; see what those are here.)
OnDeck provides two types of financing:
- Line of credit. Lines of credit are available for up to $20,000. On the Fundera platform specifically, Fundera customers borrowed a median of $10,500 and paid a median interest rate of 36 percent. OnDeck’s lines of credit fund within 45 days, but Fundera customers experienced an average of five days to funding. In order to get a line of credit, you must have a minimum personal credit score of 600, have been in business at least one year and have minimum annual revenues of $200,000. Fixed weekly payments are automatically deducted from your business bank account, along with a $20 monthly fee. Once money is drawn from the credit line, it must be repaid within six months.
- Short-term loans. Loan sizes range from $5,000-$250,000. The median size loan Fundera customers have obtained is $25,000. Factor rates for these loans range from 1.09 to 1.41, with a median of 1.25. Funding occurs within 30 days, but can be as fast as 24 hours. The median time to funding for Fundera customers was 5.9 days. Short-term loans are repaid within three to 24 months via either daily or weekly repayments, depending on the loan amount. The minimum personal credit score required is 500; you must have minimum annual revenues of $100,000 and have been in business for at least 12 months.
It takes under 10 minutes to complete OnDeck’s one-page, online loan application. All the documentation you need is the past three months’ worth of business bank statements and credit card statements, as well as your Social Security number and/or Employer Identification Number (EIN).
What do Fundera customers have to say about OnDeck? In general, customers are highly satisfied. OnDeck earned an average rating of 4.5 out of five stars. Customers liked the simplicity of the loan application process, the professionalism of the OnDeck team, and the speed with which their loans or lines of credit were funded. Although some customers said the costs of the loans were high, overall borrowers felt that the ease of obtaining financing made up for the costs. And while some did not like making daily payments, customers agreed that the repayment process was simple and seamless. (Read more borrower reviews of OnDeck.)
Since it launched in 2009, Kabbage has financed over $1 billion in small business loans to more than 100,000 small businesses. Unlike OnDeck, Kabbage offers just one form of financing—business lines of credit ranging from $2,000 to $100,000. The application process is even easier than OnDeck’s: Just provide your Social Security and EIN numbers, then connect your Kabbage account to one of your business-related accounts such as QuickBooks, Square or PayPal so Kabbage can view and verify your revenues and other financial information. Applications can be approved in just minutes.
Kabbage offers smaller loans than OnDeck, as well as shorter terms. Credit lines must be repaid in six months. Kabbage doesn’t charge interest, but does charge monthly fees that range from 1 to 12 percent for the first two months, then stay at 1 percent for the final four months. Unlike OnDeck, Kabbage credit lines are repaid with monthly payments, each payment being one-sixth of the total amount borrowed (plus that month’s fees). There’s no penalty for early repayment—in fact, you can save money by repaying the loan early. However, you won’t save a lot, since most of the fees are charged in the first two months of the loan.
Kabbage vs. OnDeck
While Kabbage and OnDeck have many similarities, there are some important differences between them that you should consider before choosing your financing source.
- Personal guarantee required, which means lenders can come after your personal assets if you default
- Lender can place a lien on your business assets
- Payments made daily or weekly
- If you decide to pay the loan off early, they’ll give you a 25% discount on remaining interest, but forgive it all entirely
- Charges a 2.5 percent origination fee on all loans
- Varying options as to loan length and type of loan
- Option to get more money than from Kabbage (up to $250,000)
- No personal guarantee required, so lenders cannot come after your personal assets
- Lender may place a lien on your business assets for loans over $20,000
- Fixed monthly payment
- You can save some money by repaying loan early
- No origination fee
- Loans must be in the form of a line of credit
- You can get a larger line of credit than from OnDeck (up to $100,000 vs. up to $20,000), but you can’t get as much money overall (up to $100,000 line of credit vs. up to $250,000 loan)
What does it boil down to? Overall, OnDeck offers more money if you need a larger sum, and more flexibility as to the form and terms of your loan. Kabbage can be a good resource if you want more than $20,000, like the idea of a line of credit that you don’t have to pay back until you actually use it and feel confident you can pay back the loan in six months. The answer will depend on your needs.
the article first appeared in Fundera.com