March 15, 2013
By Bob Coleman
Editor, Coleman Report
We sat down with Noah Breslow, CEO, On Deck Capital, and discussed alternative and micro-lending.
Bob Coleman: Noah Breslow, On Deck Capital out of New York. Noah welcome.
Noah Breslow: Thanks so much Bob; great to be here.
Bob: Now you are what we call an alternative lender in small business lending. What does that mean?
Noah: Well basically it means that we’ve developed a credit model and approach to lending that allows us to access smaller small businesses; businesses with typically less than $3 million of annual revenue; and provide capital to them in a way that many traditional institutions have been unable to
Bob: Well, let’s talk about the traditional institutions. Are you now competitors to the local community bank out of Topeka? I mean, how should they feel about you?
Noah: Generally I think they should feel good. We offer an alternative for those community banks as well. They may have a loan product that might require very high personal credit scores, a long track record in business; maybe they prefer lending to certain industries. We have an electronically driven credit model that will allow us to serve many businesses that these banks typically cannot serve with their core products. We actually have relationships with a number of banks around the country who, when their core product doesn’t apply, they refer customers to us to serve them.
Bob: So you’re looking to partner with these banks as opposed as being a competitor.
Noah: That’s right. We have partnerships not only with community banks but with some larger banks as well. Really, what we call it is sort of a second look program, or a decline referral program; when the first product on the shelf doesn’t apply, you can use On Deck as an alternative platform. It keeps your customers happy; it keeps their deposit balances at the bank.
Bob: Tell us about your credit box. What’s your sweet spot? What’s the type of deal you guys love to do?
Noah: As I mentioned, they’re typically smaller small businesses, less than $3 million dollars in annual revenue; the average business is about $1 million in annual revenue. We can serve a wide variety of industries, from retail to manufacturing to
Bob: Dollar amount. What’s your average size deal?
Noah: They’re borrowing anywhere from $5,000 to $150,000 from us; the average size is around $30,000.
Bob: 30,000; great. Tell us how you feel – everything that we read and we see; we know that we’re in a lot better place than we were in 2008 and 2009. From your corner of the world, how do you see small business lending, and do you still think that a lot of us do that? There is a capital access problem to Main Street, or do you see that loosening up?
Noah: You know, I think what we’re seeing at a macroeconomic level is that small business owners are more optimistic today than they were 2 or 3 years ago. We track the reasons why people look for On Deck loans; and I would sort of probably classify them as offensive and defensive. Defensive might mean you’re having a slow week at the restaurant; it’s your off season for a seasonal business. But Offensive means you want to grow your business; you want to buy assets; you want to hire workers; you want to buy inventory. And the number of offensive loan applicants, so to speak, for us is at an all time high.
Bob: Well you guys have certainly; you’ve done a great job. You just closed a deal, what $350 million of additional funding that you can lend out. And what is your portfolio? How much in deals have you done so far?
Noah: We’ve loaned about $400 million total in terms of small business loans to Main Street customers. We actually expect this year to do even more than that in just 2013; so the business is growing very quickly.
Bob: Congratulations. Noah Breslow out of New York, On Deck Capital; thank you for joining us.
Noah: Thanks for having me Bob; appreciate it.