The Ultimate Guide to an OnDeck Line of Credit
Are you seeking a short-term line of credit for your business to get over a cash flow crunch or handle unexpected expenses?
Getting a line of credit from a business bank can be time-consuming and difficult—you’ll need to fill out a pile of paperwork, and probably put up some collateral.
If you need a line of credit quickly, consider working with an alternative lender like OnDeck. OnDeck specializes in both lines of credit and short-term business loans.
Here’s a closer look at the OnDeck line of credit product, and the best alternatives on the market.
What’s a Short-Term Line of Credit?
OnDeck offers short-term lines of credit.
While calling these products “short-term” lines of credit isn’t an industry-wide practice, it’s an easy way to distinguish these products from their very similar counterparts.
Here’s what you need to know.
Compared to lines of credit offered by banks and medium-term lenders, short-term lines of credit (like an OnDeck line of credit) are much smaller.
Whereas banks offer lines of credit in the million-dollar range, short-term lines of credit hardly go above $250,000.
On top of that, short-term lines of credit are paid back over a shorter term, once you draw from the credit line and owe the lender money. A short-term product like an OnDeck line of credit gets repaid over a few months.
And finally, short-term lines of credit are more expensive than products that you’d get at a bank. The exact interest rate you’d get on an OnDeck line of credit, for instance, depends on the exact qualifications of your business, but in general, you can expect them to range from 10% to 80%.
Why Short-Term Lines of Credit Are More Expensive: Accessibility
Why, you might be wondering, is an OnDeck line of credit more expensive than other longer-term options?
Well, short-term line of credit lenders like OnDeck are much more accessible lenders.
Traditional bank financing is only an option for the most qualified borrowers—those with very high credit scores, strong business financials, and experienced, successful small businesses.
OnDeck lines of credit, on the other hand, are available to less-qualified, riskier borrowers. This means you can qualify with bad credit, weaker revenues, and shorter times in business.
To compensate for the risk of lending to you, though, OnDeck and other short-term line of credit lenders will charge higher interest rates. That way, if you do end up not being able to pay back the financing, the lender will have gotten most of the return out of the interest you’ve already paid.
Why Short-Term Lines of Credit Are More Expensive: Speed
Another reason why an OnDeck line of credit and other short-term lines of credit are more expensive that bank lines of credit?
These lenders work over a much more expedited time frame.
With totally online applications, you can apply for a short-term line of credit in minutes (not weeks, as it takes with a bank). On top of that, OnDeck and other short-term line of credit lenders don’t require as much paperwork to apply—meaning that they’ll have less paperwork to review during the underwriting process. In fact, these lenders mostly use technology and efficient algorithms to determine what you qualify for with a bare minimum amount of information.
All in, an OnDeck line of credit can be in your bank account within days. In the best case scenario, you can be approved the same day you apply.
But remember, fast cash is expensive cash. And an OnDeck line of credit is certainly no exception.
These short-term line of credit lenders are simply spending less time de-risking your business loan application—meaning your profile is risky to lend to, and they’ll charge high interest rates for it.
What You Need to Know About an OnDeck Line of Credit
OnDeck offers lines of credit ranging from $5,000 to $100,000, with a quick and easy approval process.
You’ll be given access to a set amount of funds, which you can draw from whenever you want or need to for your business. Just like with a traditional bank line of credit, with an OnDeck line of credit you don’t need to start repaying until you actually draw from the credit line. Afterwards, fixed weekly payments automatically get deducted from your business bank account.
There’s also a $20 monthly maintenance fee. However, if you draw $5,000 or more from your credit line within the first five days of opening your account, that fee is waived for six months. There are no fees to draw money, and you can pay the balance back early with no prepayment penalty.
How Do You Qualify for an OnDeck Line of Credit?
As we’ve mentioned, short-term lines of credit are fairly easy business loans to qualify for.
And OnDeck credit lines are certainly no exception.
To qualify, you must:
- Have been in business for at least one year
- Have at least $100,000 in gross annual revenues
- Have a personal credit score of 600 or higher, if you’re the majority business owner
The Advantages and Disadvantages of OnDeck Line of Credit
The Advantages of Using an OnDeck Line of Credit
Why choose an OnDeck line of credit over another financing option?
Well, as an established and popular alternative lender, there are many reasons why you’d want to work with OnDeck.
Here are specific positives to taking on an OnDeck credit line.
Fast Access to Funding
If you needed funds yesterday, then you’re likely looking for a short-term lender that can move quickly on the application and funding process. A line of credit from OnDeck would certainly fit the bill.
Applying for an OnDeck line of credit takes no more than 10 minutes, with a one-page online application.
And if you’re approved, the funds can be in your bank account as fast as the same day you apply.
Easy to Qualify For
OnDeck is one of the most accessible line of credit lenders on the market.
It’s an especially good option if you’re a relatively new business, as they only require 9 months in business to qualify. Most line of credit or short-term lenders won’t consider working with you until you have at least a year under your belt.
After that, you’ll need a minimum of a 600 personal credit score and at least $100,000 in annual revenue.
Reports to the Business Credit Bureaus
If you’re looking to build your business credit, an OnDeck line of credit can help you do it.
By continually drawing from and repaying your line of credit with OnDeck, you’ll establish a solid credit history of paying on time and in full.
While OnDeck doesn’t report to the personal credit bureaus, they do report your behavior to the business credit bureaus—which is unusual for most lenders.
Use an OnDeck line of credit responsibly, and it’ll be a stepping stone towards lower-rate products in the future.
The Disadvantages of an OnDeck Line of Credit
Every financial product has its downsides, and OnDeck’s disadvantages should certainly be considered if before you take on a line of credit.
Here’s what you need to consider before signing on the dotted line.
Higher Interest Rates
Due to their speed and accessibility, lines of credit from OnDeck can get expensive.
Line of credit rates from OnDeck typically range from 13.99% to 36% APR. The exact rate you get gets determined by OnDeck based on your business and personal credit scores, as well as on an assessment of your business’s cash flow.
While a OnDeck line of credit is less expensive than their short-term loan product, you still could end up qualifying for a pretty expensive interest rate.
It’s important to check all of your financing options before you choose to work with an expensive lender. You never know what low rates you could qualify for unless you’ve fully exhausted your options.
Smaller Amounts and Shorter Repayment Periods
Compared to other lenders, OnDeck offers smaller line of credit amounts. While this can be perfect in some financing scenarios, it can also limit you in terms of how much you can get accomplished with an OnDeck line of credit.
They’ll also require you to pay back what you’ve drawn with weekly payments, over a 6 month period. Depending on the amount you drew, this could be a pretty tight repayment schedule—which could limit your cash flow available for other business expenses.
OnDeck Lines of Credit vs. the Competition
How does an OnDeck line of credit stack up against the competition?
The most comparable lender offering short-term lines of credit similar to OnDeck’s is Kabbage Funding.
Here are the details you need to know about the Kabbage Funding line of credit product.
Kabbage Funding Lines of Credit
Kabbage Funding offers lines of credit up to $150,000, and its approval process is even faster and easier than OnDeck’s. There’s no minimum requirement for your personal credit score—just provide some basic business information and give Kabbage Funding access to those accounts, like QuickBooks, Square, or your business checking account, that provide an overview of your cash flow.
Kabbage Funding reviews this data and determines whether you qualify for a six-month or 12-month term. (If you want the 12-month term, you’ll need to get a credit line of at least $5,000.) Once approved, you can draw cash as often as once a day, with no repayments until you actually draw money.
- Have been in business for at least 1 year
- Have at least $50,000 in gross annual revenues
How to Qualify for a Kabbage Funding Line of Credit
Like an OnDeck line of credit, Kabbage Funding credit lines are very accessible and easy to apply for. Unlike most lenders, Kabbage Funding doesn’t set a minimum threshold for personal credit. They’ll certainly look at your personal credit score, but they will work with borrowers with very bad credit.
If they don’t look at your credit score, what does it take to qualify? Here are the basic line of credit requirements Kabbage Funding looks at:
Kabbage Funding Lines of Credit: Interest Rates
Kabbage Funding has a pretty unique interest rate structure, with fixed fees instead of traditional interest rates.
Once approved, you’ll pay a fee of between 1.5% and 10% of your chosen loan amount. Every month, you pay back one-sixth of the total loan (if you have a six-month loan) or one-12th of the total loan (if you have a 12-month loan)—plus that monthly fee. You can repay the loan early with no penalties.
How to Decide Between Kabbage Funding and OnDeck
Which alternative lender offers a better line of credit for your business?
That depends on your situation and your needs.
Here are their main differences:
- Fixed monthly payment (Kabbage Funding) vs. fixed weekly payment (OnDeck)
- $50,000 minimum annual gross revenues (Kabbage Funding) vs. $100,000 minimum (OnDeck)
- No minimum personal credit score (Kabbage Funding) vs. minimum 600 personal credit score (OnDeck)
- Doesn’t report to the business or personal credit bureaus (Kabbage Funding) vs. reports to the business credit bureaus (OnDeck)
If you business has lower revenues or you have a lower credit score, Kabbage Funding might be the better option over an OnDeck line of credit. Kabbage Funding is also a good option if you prefer making a fixed payment just once per month—like if you own a B2B company that only bills customers once per month and gets paid in “chunks.”
If your business is more established with higher revenues or if your income is more consistent—a retail or restaurant business with a lot of small but steady sales, for example—then you might prefer smaller weekly payments to having one big payment due each month.
Don’t choose your lender based on this alone. No matter what type of financing you’re seeking, always compare the cost of the capital—which includes interest rates, fees, and penalties. Check out our full comparison of OnDeck vs. Kabbage Funding to help with your decision.
Traditional Lines of Credit: How They Compare
How do lines of credit from OnDeck differ from traditional lines of credit?
If your business is relatively new and doesn’t have a well-established credit history, or if your personal credit score is less than stellar, getting a line of credit from a traditional bank can be very difficult. OnDeck has more lenient requirements for approving lines of credit.
If you’re in a hurry and/or simply don’t like dealing with paperwork, a line of credit from OnDeck or Kabbage Funding can be much more appealing than approaching a traditional bank. Applying for a line of credit at a bank can take weeks and involve lots of paperwork, like financial statements and tax returns. Not only is the application process at OnDeck and Kabbage Funding fast and easy, but approval is also quick.
Of course, there’s a trade-off for these benefits: lines of credit from OnDeck or Kabbage Funding are more expensive than those from banks. But if you’re willing to pay for speed and convenience, either company can be a good option.
Frequently Asked Questions
The Bottom Line
OnDeck credit lines work well for borrowers who need flexible funding in a pinch.
While they can be more expensive and shorter-term, these lines of credit are good stepping stones to less expensive and longer-term loan products in the future. Remember, they do report to the business credit bureaus, so good borrowing behavior will go a long way towards building your credit score.
But because these can be expensive products, make sure to shop your options around to see if you can get a lower rate elsewhere.
Your best financing option is the one that comes at the lowest cost to your business!
Meredith Wood
Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
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