Working Capital (Debt) Financing For Entrepreneurs: Mitch Jacobs, Founder And CEO, On Deck Capital (Part 4)

By guest authors Irina Patterson and Candice Arnold

Irina: All your contacts with businesses seeking financing and all the processes are through the software, right? There are no people-to-people meetings like angel groups have?

Mitch: No. Although, I think increasingly there are businesses where there’s both a technology layer and a business services layer. And we do have people who get on the phone with small businesses owners. Small business is still a contact sport.

While we’ve developed an entirely self-service environment, if you’re going to be successful aggregating Main Street on a national scale and ultimately a global scale, you need to be ready to support that with people who understand small businesses and understand the challenges they face as they are seeking capital so that we can be there to help support them through that process when needed. We’ve got that; we have that capability.

On Deck represents more of a . . . almost going back in time to a day when banks would underwrite any transaction because they didn’t have a credit score as a shortcut. So, there’s not one single variable as much as the fact that the overall financial pictures of the businesses have to look strong and they have to look like they can service the debts that they want to use in their businesses. If they do, then there’s no reason why they shouldn’t be able to borrow.

Irina: Do you know how many loans you’ve made in the past 12 months?

Mitch: It’s over 1,000.

Irina: What was the average dollar amount of each?

Mitch: $30,000.

Irina: And you said the process can take about two days?

Mitch: Correct.

Irina: What size are the companies that approach you for loans?

Mitch: Again, $250,000 to $3 million is a typical range of revenue.

Irina: What’s the interest that they usually pay?

Mitch: It’s usually 18% to 30%. And these are typically six-month transactions. While that can sound high, you need to keep in mind that it’s a short duration. It’s an annual number, but really they don’t end up paying half of that in interest because of the amount of time that it’s outstanding.

Irina: What usually happens after six months?

Mitch: They’ve repaid their transactions; they continue with our system. The typical use of this capital is for inventory, equipment, marketing, and these expenses are recurring; therefore, there is some kind of capital need that the business has every 12 to 18 months.

By building a history on the On Deck system, they then become credit ready. They’re ready to access that new source of capital very efficiently. And now the whole experience of seeking capital, for a small business owner, has been transformed by being a part of the system.

Irina: So, they can go on to the next support system, right?

Mitch: Right. I referred earlier in this conversation to the project we have in the works to bring other options into the platform. Part of the idea is to be able to ultimately provide these businesses with access to mainstream bank credit.

Part of the way to do that is to continue to collect information on the businesses electronically, continuously give feedback to the business owners electronically, and ultimately to notify the business owners of what new options are available to them based on the progress that they’ve made in their businesses.

And to the degree that there’s some cyclical change or something happens in their own businesses or in the economy as a whole and their profiles change, that they also are aware that if a bank doesn’t want to loan to them, that they are able to seek alternatives efficiently.

This segment is part 4 in the series : Working Capital (Debt) Financing For Entrepreneurs: Mitch Jacobs, Founder And CEO, On Deck Capital
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