Growth Companies

OnDeck Capital Lets Institutional Investors Buy SMB Loans

The online lending platform will now be open to assets managers and hedge funds that want exposure to "Main Street" borrowers.
Katie Kuehner-HebertJanuary 23, 2015
OnDeck Capital Lets Institutional Investors Buy SMB Loans

OnDeck Capital has opened its OnDeck Marketplace platform to more institutional investors so that they can buy small business loans originated by the New York-based online lender.

OnDeck has been piloting its online lending platform for a year with a group of “inaugural” institutional investors, including asset managers, hedge funds, and business development companies, the company said in a press release on Thursday.

“Institutional investors have been seeking a platform to gain credit exposure to Main Street business loans at scale,” OnDeck’s chief executive Noah Breslow said in the release. “OnDeck Marketplace is a natural extension of the increased predictive power of our OnDeck Score, and further diversifies the company’s sources of revenue and capital.”

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To use the platform, an institutional investor opens an OnDeck Marketplace account, purchases loans on a programmatic basis, and then receives daily principal and interest payments from the loans it owns, the OnDeck said.

Loans on the marketplace are priced according to OnDeck Score, a business credit score based on analytics of small business data the company collects, “rather than relying solely on the small business owner’s personal credit history,” OnDeck said. Loans are graded A through F mostly based on their OnDeck Score, which then sets the prices institutional investors pay for individual loans.

An American Banker story on Thursday said that selling small business loans has been a growing strategy that online lenders have used to boost their bottom lines. OnDeck also recently started securitizing its small business loans that are not backed by the U.S. Small Business Administration.

Last month OnDeck completed an initial public offering and ended its first day of public trading valued close to $1.8 billion, according to American Banker.

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