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Funding small business loans where banks refuse to tread

Banks don't leverage technology to make smaller loans profitable, says Noah Breslow

Restaurant owners in Los Angeles are among the small business owners needing a loan to meet a critical need only to have a bank turn them down.

The owner of Peruvian restaurant Los Balcones, Jorge Rodriguez, needed money to roll out the lunch menu at his Hollywood location. His request was denied, just like 82 percent of business owners who seek traditional loans.

The number comes from alterative funding source OnDeck, a technology platform connecting small business owners with access to capital. The company that connected Jorge Rodriguez with investors started in 2007 and spent a half-million dollars to comply with regulatory issues. CEO Noah Breslow said banks can make million dollar loans but their overhead is too great to profit from a $40,000 loan and the institutions don't leverage technology to service smaller loans.

Shortly after OnDeck launched, the 2008 recession hit and business owners were borrowing in a defensive posture. Noah told me one of the issues in the first years was how to lower default rates.

The company rolled out its OnDeck score to gauge the credit worthiness of potential borrowers by detailing how they run their business instead of examining their personal credit. He said loans are practically made in real time and funding can take place in hours. An example he cited is a restaurant getting a large catering job on a Wednesday and has to borrow money to hire temporary staff and buy food and supplies for a Saturday event.

Noah says the default rate is in the single digits and 80 percent of borrowers need the money to expand their businesses.

OnDeck has now loaned over $ 80 million dollars to hair salons, doctors' offices, and other small businesses in Los Angeles and has reached the $1 billion mark nationally.

For a complete interview and story on how a hair salon used OnDeck, click here for A Closer Look.

Further reading is available through OnDeck's website.

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