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On deck capital helps small businesses build their creditworthiness

By Brian Anderson
Published: Thursday, May 12th, 2011

26There are a lot of start-up ventures and companies that receive angel funding as well as venture capital, but there are a whole lot of small businesses that are essentially the backbone of an economy and play a huge role in the success of the economy, but are never on the radar of the either the angels or the VCs. These are small businesses such as retailers, florists, restaurants, salons, that are not essentially high-end startups such as Facebook or Google but they are essential in our daily lives and they are equally deserving of capital to help them take off. Earlier, securing loans for such businesses was virtually impossible, but now, it is a different scenario altogether.

In general, these small businesses don’t have a separate finance department. These spend very little on finance and keep small reserves of cash and very often don’t have what it takes to complete a loan package that the lenders find attractive. Even the financial institutions will not be in a position to spend too much of time evaluating or working on businesses that seek sub-$100K loans. Hence, these banks tend to depend on consumer and personal credit scores and treat these startups as individual borrowers instead of taking the credit potential of the entire business itself.

On Deck Capital was launched in May 2006 to bring about some orderliness by streamlining the whole process of granting loans to these smalltime businesses and startups. On Deck does not merely look at the tax returns filed by the applicant to evaluate the business and instead uses software to observe the day-to-day operations of the particular business. The software investigates the number of customers who are in the business, sales, cash flow, and registered complaints etc. This will help in judging to see if the company is financially sound in order to be able to repay the loan.

Since banks don’t have an efficient system to analyze small businesses for the sub-$100K loans and have previously underwritten commercial loans on the basis of the consumer credit score, there are many small businesses that are credit worthy but have been deprived of capital that they need to fuel further growth.

Now On Deck is announcing the On Deck Score which is a business credit score that was developed to provide lending institutions a measure of the creditworthiness of these small businesses. Equifax has partnered with the startup to provide data to develop as well as implement this score.

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