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Getting a Small Business Loan When the Bank Says No

One recent happy customer of On Deck is Travis Clark, owner of a Foot Solutions franchise in Grove City, Ohio. Foot Solutions fits and sells proper footwear, orthotics and custom arch supports to customers with foot, knee and back pain.

Clark opened his store a year and a half ago. He claims his personal bank PNC Financial Services (PNC) wouldn't even look at his application because he hadn't been in business for at least three years. A PNC spokesperson could not be immediately reached for comment.

"I had to resort elsewhere," Clark says. "I found On Deck [online] and I contacted them and it's been a pretty smooth process since we started."

Clark says he worked with an On Deck representative over the phone and within five days he had a $20,000 loan.

"Since we're such a seasonal business we used it for inventory purchases. We have to do new purchases each season especially in Ohio," Clark says, adding that he would "absolutely" use On Deck again if needed.

"The process is pretty straightforward, they don't judge up front like a lot of the banks are going to do," he says.

Defaults are roughly 5% of On Deck Capital's portfolio. On Deck doesn't make public its approval vs. rejection rate of applications, but Breslow emphasized that the company is providing access to capital for many businesses that can't get bank loans.

The system's automated payment system helps keep tabs on what's happening at the businesses quicker than a bank's portfolio. Businesses have two choices on how to pay back loans. They can either choose fixed, daily micro-payments, drawn from their operating business account. Or they can choose a split funding option, which On Deck launched in April.

Split funding allows merchants to pay back the loan using a variable percentage of their daily credit card sales. The split funding keeps the benefits of a true business loan, while offering the flexibility of aligning loan payback with seasonal or varying sales, according to the company's website.

The daily payments prevent the "snowball effect often caused by missing larger monthly payments," according to the company's website.

"We're looking at that business's bank account every single day and that allows you to keep closer tabs. And in the event there is something going on, we can adjust the terms accordingly to work with the business owner to get through it," Breslow says.

"We're still servicing a small section of the market. As it gets more mainstream and more widely accepted, you will see it more widely deployed," Breslow adds.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to:

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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