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OnDeck claims it is “changing the way small businesses access capital” through an online technology platform. Businesses apply online in 15 -20 minutes and find out which lenders, if any, are interested. Approvals are confirmed within 24 hours.
How OnDeck changes the lending landscape for small b’s is by focusing on the “true health of your business – not just credit scores.” Presumably if you have a good cash flow, solid revenues and a verifiable track record, your chances for obtaining a short-term business loan are good. Unlike traditional small business lending which relies on an owner’s personal credit history, OnDeck examines how the business itself has operated through a myriad of public and online media sources.
Algorithms, traditional metrics are used to determine loan-worthiness, but also something new: social data. How is the business reviewed on Google, Yelp or Open Table? How many customers check in at Foursquare? What is a businesses twitter score and Facebook following? The social data model does change the game for businesses that run their enterprises well. CEO Noah Breslow, a former software engineer, saw the need for broader small business loan terms before the 2008 financial crisis. OnDeck’s timing was helpful for small-b’s to obtain operating capital left behind by the recession.
What’s the catch? Well, there are two and they are big ones. The biggest catch is the usurious interest rate of 18-36%. If you are in desperate need from cash and can’t convince your rich hedge fund brother to make a short-term interest free loan, the next best thing might be to sign away your home equity, personal and business assets, your heirloom diamond, your Porsche Carrera, or whatever is not tied down and Ebay worthy! Because, your lender is going to want that.
So what do we really think of OnDeck Capital, the small business lender that is supposed to be changing the game for small business? It’s a great option for anyone left out of the game who needs cash on hand to keep their booming business going. If you don’t mind the excessively high fees and feel the price is worth it, then go for it! On the other hand what CEO is on the hook with car, home, and personal assets for his company’s debts? That’s just it: none! Until that happens, this is a new option for a credit tight economy, but it definitely does not change the game for credit starved small businesses and entrepreneurs.