Online lending for small businesses has become a crowded space with several big competitors vying for market share. Two have emerged as clear market leaders – Kabbage and OnDeck Capital.
Until recently, small businesses in need of capital had limited options. Until more recently, traditional banks stopped lending to small businesses following the financial crisis, and very few smaller, less established business are even able to qualify for bank financing. The emergence of online lenders quickly filled the void left by the banks and now offers small businesses a viable option for quick and easy financing at reasonable costs.
Kabbage vs. OnDeck
|Rates (APR)||7.00% – 69.00%||14.00% – 40.00%|
|Loan Amounts||$2,000 – $150,000||$5,000 – $500,000|
|Time to Funding After Approval||1 – 3 days||1 – 3 days|
|Origination Fees||1.50% – 10.00%||1.25% – 3.99%|
Both Kabbage and OnDeck offer short-term financing to small businesses. Their hallmark, as it is with most online lenders, is quick and easy access to capital. Although their APRs are higher than those of traditional banks, the short-term nature of the loans enables businesses to control their total loan costs as opposed to having to pay interest costs over the term of a five-year bank loan. Both lenders have earned solid reputations and high marks from customers. Here is a breakdown of the two and why a small business might choose one over the other.
Founded in 2009 as an online lender for online businesses, Kabbageexpanded its market to include brick-and-mortar businesses in 2014. Since its founding, Kabbage has originated more than $3.5 billion in loans to more than 115,000 small businesses.
The Kabbage product is designed as a line of credit for amounts from $2,000 to $150,000. Businesses can draw down what they need from the line of credit and have 6 or 12 months to repay the amount borrowed. When the credit line is replenished, they can again borrow what they need.
Instead of charging an interest rate, Kabbage charges a fee that amounts to 1.5 to 10 percent of your principal for the first two monthly payments and 1 percent of your principal for the remaining monthly payments. The APR works out to be a range of 24 to 99 percent depending on qualification factors. Kabbage charges no origination fee.
Kabbage does not rely heavily on personal credit scores for approving loans, choosing instead to focus on other data factors including sales volume, revenue, operating history, and social media activity. Generally, your business needs at least one year of operating history and $50,000 in annual revenue. You must also have a business checking account managed through an online account that Kabbage can link to.
The application process is streamlined with a minimal amount of information required about your business. A loan decision is made within an hour of submitting an application and funding can occur as soon as one business day. Borrowers are told to expect funding within one to three days.
Kabbage is well regarded as evidenced by reviews across the Web. Reviewers on Trustpilot give Kabbage an average 9.2 stars out of 10. The Better Business Bureau has assigned an A+ rating and reviewers on the site give Kabbage an average 4.7 out of 5 stars. Kabbage does get its share of negative reviews with many centered on its customer service.
Both the positive and negative reviews of its customer service seems to hinge on the particular customer service rep involved – a good service rep gets a great review and a poor service rep gets a bad review. The takeaway is, if you don’t find the service rep you are speaking with particularly helpful, hang up and call another one.
Founded in 2007, OnDeck has a couple of years on Kabbage, but enough time to more than double Kabbage’s loan originations with more than $7.5 billion issued as of August 2017. The company was formed strictly as a lender to small businesses to provide a quick and easy way for under- and un-served businesses to gain access to capital.
OnDeck offers short term loans ranging from $5,000 to $500,000 for 3 to 36 month terms. Its lowest APR is 9 percent, but its average APR is around 40 percent. Borrowers who continue to borrow from OnDeck can receive lower APRs on subsequent loans. OnDeck charges an origination fee of 1.25 to 3.99 percent. OnDeck also offers a line of credit for up to $100,000 with APRs ranging from 19 to 40 percent.
OnDeck has slightly stricter loan qualifications than Kabbage. It does have a credit score requirement, but at 500, it is fairly low. The average credit score for OnDeck borrowers is 660. OnDeck also relies more heavily on aggregated data and a proprietary algorithm to determine loan eligibility. It does require minimum annual revenue of $100,000 and at least one year of business operations. Borrowers cannot have any bankruptcies or tax liens.
On Deck’s application and approval process is similar to Kabbage – a ten minute application and a loan decision within one hour. Loan approvals can come back as quickly as 15 minutes. Although many borrowers report receiving funds within one day, they are told to expect funding within one to three days.
Reviews for OnDeck are largely positive, with many customers raving about its streamlined application process and quick approvals. The average rating from nearly 900 reviews on Trustpilot is 9.4 out of 10 stars. Better Business Bureau reviews come in at 4.6 out of 5 stars. OnDeck’s customer support also receives strong reviews for helping customers through the application process and its quick response to customer inquiries.
Kabbage vs. OnDeck: Final Thoughts
Both lenders are big name brands and highly regarded in the online lending space, so it’s tough to go wrong choosing either of them. The most important determinant in choosing between the two should be based on your particular need for capital. For example, if you have a need for capital on a very short-term basis, Kabbage offers more flexibility in the payment terms. Seasonal businesses with cyclical revenue would benefit from the shorter repayment terms Kabbage offers.
Also, since Kabbage loans are more like a line of credit, it may be a better option for businesses that would like to use it as a cushion when they encounter unexpected expenses. You would also be better off applying with Kabbage if your business revenues are less than $100,000.
For businesses that need to borrow a larger amount of money and/or can qualify for the lowest rates, OnDeck would be the better option. OnDeck also offers more product options, including a line of credit. If you continue to borrow from OnDeck, you can lower your origination fee to as low as 0.0 percent. Overall, OnDeck appears to receive more favorable reviews for their products and services.
Neither Kabbage nor OnDeck are your best small business loans if you’re looking for the lowest loan rates. But then, many small businesses can’t qualify for the rates offered by traditional banks. While the APRs with Kabbage and OnDeck can be high, you can actually better control your loan costs with the shorter term loans they offer. The real advantage of using Kabbage and OnDeck is their streamlined process for quickly getting your business the cash it needs.