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Getting a Small Business Loan When the Bank Says No

NEW YORK (TheStreet) -- One of the greatest barriers in the search for business capital on Main Street is the labor-intensive underwriting process used by banks. Similar to the mortgage process, getting a business loan from a bank -- if by some miracle you are approved -- takes weeks or more from application submission to closing. For small businesses, the waiting game can put a crimp on operations.

Banks also place emphasis on a business owner's personal credit history when determining whether to approve or deny the loan. One slip up on the personal credit side could cost the business funding from a bank. Nor do banks like to lend to businesses unless they have been established for several years.

On Deck Capital seeks to remove these barriers to accessing capital by using a quicker, streamlined approach for business loans that emphasizes the financial health of a business in deciding whether the business is creditworthy. It takes into account business credit data, cash flow, payments to vendors and suppliers, public record information such as liens and bankruptcies and other variables, but not a personal credit check against the owner.

Applicants are usually given a response within one day; once approved, funding can come as fast as two days.

The service is different than say a Lendio, which is something of a loan matchmaking service between small businesses and banks, or the revenue-based lending model of Lighter Capital.

"We think that this type of lending ... will open up new markets," says Noah Breslow, On Deck Capital's CEO (Breslow has been with the company since its launch.)

On Deck, launched in 2007, services companies with revenue as little as $100,000 to as much as $5 million in revenue, but the company's sweet spot is a business with revenue of approximately $1.5 million and fewer than 10 employees. The business has to have been established for at least a year. Loan terms range from three to 18 months, from $5,000 to $150,000. The company is nearing $250 million in capital deployed to small businesses through its platform.

"The idea was to use technology to streamline lending to that middle segment that is structurally underserved by banks [with] traditional underwriting to deliver capital efficiently. The bank underwriting process is very labor intensive," Breslow says. "Generally if you go online to apply for business loan, you are directed to a local branch, you have to go in person to fill out forms. With On Deck, you go to the website and are approved in minutes."

On Deck charges a percentage based on the loan amount and terms.

What's ironic about the platform is that in order to provide funding to these small businesses, On Deck borrows from banks, other financial institutions and investors.

"Banks would never be lending to the businesses that we're providing capital to," Breslow says. "We're not a bank. We don't have piles of cash. Banks have the tools to dole out capital ... we borrow in bulk, but we have the ability to dole out smaller chunks" of capital.

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