A Real-Life Comparison: OnDeck vs. LendingClub Business Loans

A Real-Life Comparison: OnDeck vs. LendingClub Business Loans

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We have helped a number of business owners get loans through our partners. Getting a business loan is a resource intensive process and a big decision that will impact your business’s cash flow for the next few years. One of our users offered to shared his story with us on how he found a much cheaper financing option through us that saved him tens of thousands of dollars of financing cost with a lower monthly payment.

The Story

Here is the email we received from the business owner with names redacted.


Hello,

Greetings from [XYZ Company]. I hope this will be one of the more satisfying emails you will receive. [Editor’s Note: This is among top 0.01% of emails we have received so far from a reader.] I’m writing to confirm that my company has secured a $300k line from LendingClub, and we picked up the referral from your site!

In fact, your service was integral in our decision to apply for the line. I wanted to provide the background and story to you in this email. Please feel free to use us as a testimonial for your site and service, although I would request that we be used anonymously.

The story starts with our application and success with securing a line from OnDeck capital last year last year, for $200k. We are a small business that publishes [XXXXXX] websites, so we appreciate your efforts even more as we are in a similar line of business. We are profitable with about [xxxx] million/year in revenue. Due to a corporate restructure this year we lost a $470k line of credit with Amex that they would not transition to the new entity. We also bought out a shareholder and bought some other websites in 2014, so we had acquired some debt. So we looked at a slew of quick-capital credit line offers we’d been receiving, which appear to all originate with Dun & Bradstreet. We chose OnDeck. The process was not easy with them and lasted more than a week, but ultimately we secured the line. The interest rate was 24%, which we thought was excessive, as well as the daily $984 payments we got as part of the deal, but in the end we moved forward with the line. [Editor’s Note: After talking to the owner, it’s actually 24% interest on the borrowed amount or 1.24 factor which means you pay back $1.24 for every $1 you borrow. The offer is one year-term with 252 daily payments and $5,000 origination fee, which results in APR of ~50%. See the screenshot below. ]

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As a side note, you may be interested to hear that OnDeck did not provide an amortization schedule. I had to work hard to get that information so we could properly account for what part of the payments were going toward capital, and what part towards interest.

The story becomes more relevant to fundastic.com [Editor’s Note: Nav acquired Fundastic in 2015] in the last few weeks as we began looking at the prospect of renewing with OnDeck, due to our continued need for capital with our payoff of last year’s acquisitions and lower credit line with Amex. I talked to OnDeck, who informed me that once at 40% pay down level, they would be happy to re-up the loan. They said they may offer a few points lower, say 21%. This sounded good enough and we were more or less convinced to go forward.

*However the OnDeck experience had not been ideal, including another negative aspect – the inability to pay off the loan without a penalty: they offer only a 25% discount on the outstanding interest [Editor’s Note: Actually this is progress. In some cases, they didn’t offer any early payment discount at all. ]– and I decided to do some research. This is when I came across this article on your site via a Google search. Kudos to you for your SEO strategy, it basically led to a referral for a $300k line!

The Hidden Cost of Refinancing Merchant Cash Advances

That article opened our eyes to the immense cost of re-upping with OnDeck. I was also intrigued with your site and surfed around a good deal. I congratulate you on an excellent site with great info. That led me to apply – via your referral – for a LendingClub line. I did not realize they did small business loans, although I was familiar with their mailers for consumer loans which I receive at home.

LendingClub had a transparent loan — reasonable interest rate (we have 9.9% + 3% origination for a 2-year loan), no early payoff penalty, and no effect on personal credit unless we default more than 30 days. As you mentioned on your site, they need more time than OnDeck, I’m guessing a major reason being the requirement of the 4506-T from the IRS. [Editor’s Note: This is the form to authorize lenders to request your tax returns from IRS directly. ] All in all though, the procedure with LendingClub I would call much simpler, more pleasant, and had many fewer steps. [Editor’s Note: The APR for the LendingClub loan turned out to be 12.96% as shown below. ]

Screen Shot 2016-03-17 at 10.45.47 AM

So I want to thank you for your site, and for the referral to LendingClub. And per your offer, I’d also like to find out about the .25% offer, and redeem that. Our LendingClub Loan # is [XXXXXXXX] and when I talked to them, they have record of the referral coming from you guys.

I look forward to hearing back from you, and I am glad to expand on the experience we have had with small business funding.

Sincerely,

[Satisfied Reader]

OnDeck vs. LendingClub

You might have noticed that the total financing cost for the $200,000 loan from OnDeck is actually higher than the cost for the $300,000 loan from LendingClub: $53,000 vs. $41,210.24. If his LendingClub loan was actually a $200,000 loan, his total cost would be about 1/2 ($27,274) what it was with OnDeck.

The moral of the story is that you should shop around. There are lenders who spend insane amount of marketing dollars to acquire borrowers. Ultimately, the marketing cost will be stacked onto your loan. On the other hand, the less well known ones might offer much better terms. We are striving to be the resource for business owners for finding better loans with full transparency and objectivity. We are glad that we delivered in this particular case.As you can see, the SAME business owner applied for a $200,000 loan. He got 51.79% APR from OnDeck vs. 12.96% from LendingClub. The total cost for the former is $53,000 while the latter is $27,274. BUT … the OnDeck loan is a 12-month loan while LendingClub is a 24-month loan.

We also asked for the loan docs from the business owner and here is his response:


Hi,

I’m attaching the docs from OnDeck and LendingClub. Please feel free to use as you wish, just blocking out our name where it shows up of course! With LendingClub I have a few other docs so if you think this is not the right doc, I will look at the others. OnDeck didn’t give us anything besides this one. [Editor’s Note: See the following screenshot for OnDeck’s term sheet. ]

Step 1: Review Your Loan Details

It’s interesting that you’d mentioned more of your readers qualify for OnDeck than LendingClub. Since we have higher revenue than a lot of their respective clients, we immediately applied outside their regular top range of financing, and both were interested and ultimately lent to us. But the process seemed harder with OnDeck: they wanted to see our lease, financials, had many more questions about the three months of bank statements (both wanted three months.) In turn, when we approached LendingClub this year, we were in the middle of a corporate re-structure. [Editor’s Note: After clarification, the owner told us they switch to a new corporate entity as part of the re-structure.] Initially our rep thought that would disqualify us, but they looked at our internal docs, realized that it was the same business just moved to a new entity, and we moved forward. Also with LendingClub I actually spoke to an underwriter. In our experience, it is unheard of that a bank would actually provide direct access to an underwriter. And the approval was super easy with LendingClub – once they approved, all we had to do was give a verbal “OK we accept” and they sent the funds. No closing docs to sign, which is always a bit of a pain to print, scan, etc. [[Editor’s Note: See the following screenshot for LendingClub’s term sheet. ]*]

ondeck-lc-termsheet-2

I’m happy to provide anything else that might be useful information for you. I will try to respond in a timely manner! And by all means let me think about your case study section, we may want to indeed get a mention in your business owner section. I’ve looked at it and it is another good part of your site. [Editor’s Note: He is referring to our Business Owner Voices section.]

Take care.
[Satisfied Reader]

Conclusion

If you qualify for both LendingClub and OnDeck business loans, I can’t see any reason why you would go with OnDeck. LendingClub’s loans are cheaper in cost, more transparent and the process is less onerous according to our reader who applied for both.

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About the Author — Lydia serves as Content Manager for Nav, which provides business owners with simple tools to build business credit and access to lending options based on their credit scores and needs.

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