Getting a Small Business Loan When the Bank Says No

"The idea was to use technology to streamline lending to that middle segment that is structurally underserved by banks with traditional underwriting to deliver capital efficiently. The bank underwriting process is very labor intensive," Breslow says. "Generally if you go online to apply for business loan, you are directed to a local branch, you have to go in person to fill out forms. With On Deck, you go to the website and are approved in minutes."

On Deck charges a percentage based on the loan amount and terms.

What's ironic about the platform is that in order to provide funding to these small businesses, On Deck borrows from banks, other financial institutions and investors.

"Banks would never be lending to the businesses that we're providing capital to," Breslow says. "We're not a bank. We don't have piles of cash. Banks have the tools to dole out capital ... we borrow in bulk, but we have the ability to dole out smaller chunks" of capital.

The company is increasingly looking to partner with financial institutions to open the market for small-business loans.

On Deck says it's in discussions with many of the top U.S. 25 banks to use the technology platform.

"The banks are recognizing now that we have a proven model to work with a segment they are missing," Breslow says. "We have a credit model that is very squarely focused on the health of these micro businesses and not on the personal credit of the business owner. We're able to open up credit access to a whole new spectrum of businesses that have been screened on personal credit." (The company wouldn't release the specific names of banks with which it is in discussions.)

"Lending to a business with 300 employees is very different than an upstart with 25 employees and $25 million in revenue or even a home-based self-employed individual that brings in $30,000 in annual revenue," he adds.

When the company originally launched, it expected certain industries to be more prevalent than others at receiving funding through the platform, like restaurants, auto body shops, retail stores and others that commercial bankers typically stay away from due to high failure rates, Breslow says.

Instead, what they're seeing is "bankable" self-employed people like doctors and dentists finding relief through On Deck's system.