Small business lender OnDeck (NYSE: ONDK) announced the launch of a platform for institutional investors today.
Properly speaking, the platform soft-launched a year ago, CFO Howard Katzenberg told Bank Innovation Tuesday, and a number of institutional investors — banks, insurance companies, hedge fund, mutual funds — have been piloting it. But the announcement today makes the platform available on a widespread basis.
With the platform, investors can receive daily principal and interest payments from their OnDeck loan portfolio. The product gives OnDeck access to asset management dollars — where the big bucks are.
OnDeck launched as a small business lender in 2007 and went public in December 2014, shortly after fellow alternative lender Lending Club, raising $200 million in its initial public offering at a valuation of $1.3 billion. The company has a current market capitalization of about $1.2 billion.
Since launch, it has been refining its OnDeck Score, a proprietary scoring tool that has gotten better as the years have gone by. The tool is now able to predict likely leads for the lender, for example. And the loss rate has declined while average loan size — currently around $45,000 — has increased every year. OnDeck Score, now in its fifth generation, uses 200 inputs to score businesses, with an emphasis on business performance. Too often, Katzenberg said, small businesses are scored like consumers, when actually a person working for a corporation making $70,000 is a different animal than a small business owner with a $2 million dollar business bringing home $70,000.
“We’re on pace to originate $1 billion-plus annually,” Katzenberg said. “These are Main Street businesses, a great cross-section of the economy. We have seen great interest from institutional investors. Marketplace gives access to this emerging asset class.”
OnDeck was the first alternative small business lender to securitize loans — $175 million worth, in April 2014.
“We have institutional investors looking to buy loans outright from us,” Katzenberg said. “What you’re seeing is continued growth of small-dollar, short-duration business loans, paired with strong demand from institutional investors.”
Join us March 2-3 in Seattle for Bank Innovation 2015, where we will explore the future of fintech, including new trends in alternative lending.