Alternative loans are a good financial resource for small businesses that can't qualify with a traditional bank. Banks have stringent loan requirements and may be hesitant to provide loans. Alternative lenders provide small businesses with dependable financing without requiring exceptionally high credit scores. While alternative lenders may have higher interest rates, you can still access the capital you need to grow your business.
After much research and analysis, we recommend OnDeck as the best alternative lender for bad credit loans in 2019. To understand how we selected our best picks, see our methodology, as well as a comprehensive list of alternative lenders, on our best picks page.
You only need a credit score of 600 to qualify for a loan from OnDeck. The company also provides a fast funding process and excellent customer service. Here is a breakdown of why it's our best pick.
A poor credit score will eliminate you from consideration with many alternative lenders, but it doesn't with OnDeck. While the majority of OnDeck borrowers have relatively high credit scores, the lender considers everyone with a credit score above 600. This is one of the lowest minimum credit scores we found among alternative lenders. SBG Funding led the way with a requirement of 500.
However, the low credit score threshold doesn't mean OnDeck approves loans for floundering businesses. It just means that, instead of using credit scores as a primary factor in lending decisions, the company focuses on how businesses perform financially in terms of monthly revenue and cash flow. To be considered for a loan, you must have been in business for at least a year and have at least $100,000 in revenue over the past 12 months.
We were pleased to see that OnDeck clearly outlines its minimum requirements on the company website. This isn't true of all alternative lenders; we had a difficult time finding this information for others we examined. By being transparent online, OnDeck allows busy applicants to quickly check if they qualify and understand what type of loan they can get. Some lenders require interested borrowers to call for more information. This isn't ideal for some small businesses, and OnDeck realizes that and provides its information online.
OnDeck provides loans for more than 700 different industries. The only industries it can't lend to are listed here. Notably, OnDeck can't lend to room and boarding organizations, religious organizations, or firearm vendors.
Application and Approval Process
Of the alternative lenders we considered, OnDeck has one of the quickest application and approval processes. You can fill out an application in just a few minutes by going online or calling the lender and speaking to a loan specialist, who will fill out an application for you.
OnDeck asks for basic information about your business – name, address, tax ID number, years in operation and legal entity – and requires you to provide your estimated gross annual revenue and average bank balance.
After you submit the application, OnDeck conducts a soft credit check. This is beneficial to those with bad credit, because it doesn't lower your credit score like a hard inquiry does. Many of the other lenders we examined only conduct hard credit checks. OnDeck also provides flexibility for borrowers looking to compare multiple offers from different loan companies – if you go with another offer, your credit score isn't affected by OnDeck's soft inquiry.
OnDeck examines your last three months of bank statements. You can provide these in two different ways. One option is to electronically authorize your bank to send OnDeck the information via one-time import. This is the recommended option, because it streamlines the approval process by quickly allowing OnDeck to review the data. The other option is to send hard copies of your bank statements by mail, email or fax directly to OnDeck. The downside of this option is that a loan specialist needs to review the information manually, which lengthens the time it takes to get approved. If you mail your application, this could also add to funding time. Electronic transfer is the quickest and easiest way to get funding.
Depending on how the bank statements are sent, approval can be completed in just a few minutes, with funds deposited into your account within 24 hours. This process is significantly faster than it is for most of the other lenders we researched, which take 3-5 days for approval and 5-7 days to provide the funding. Same-day funding makes OnDeck loans ideal for business owners who need quick funding to manage cash flow. Only a handful of the organizations we looked at provide same-day funding.
OnDeck offers both term loans and lines of credit. Term loans up to $500,000 are available in short- and long-term loans. The short-term loans are fixed-rate loans starting at 9% interest, with payments remaining the same over the life of the loan. The loan terms range from three to 12 months.
OnDeck's long-term loans range from 15 to 36 months and include an annualized interest rate. This rate starts at 9.99% and is annualized throughout the life of the loan, meaning the yearly interest percentage is paid based on the average loan balance. It charges a one-time origination fee of 2.5% to 4%. OnDeck provides flexibility and multiple options for business owners looking for long-term loans. Most of the lenders we evaluated only offer loans of up to 12 months.
Lines of credit up to $100,000 are also available from OnDeck. Interest rates for lines of credit can be as low as 13.9%. There is also a $20 monthly maintenance fee, but that is waived if you take out $5,000 on your first draw. While OnDeck wants to know how you plan to spend the money, there are no restrictions on what you can use the loans for. OnDeck loans are used for various purposes, including working capital, new inventory or equipment, hiring employees, expansion, remodeling, marketing, and cash flow management.
You pay back OnDeck loans on a daily or weekly basis, with the same fixed amount automatically debited from your bank account. Having the money automatically withdrawn helps with your cash flow and prevents you from missing larger monthly payments. Not all the lenders we looked into offer this option.
What most impressed us about OnDeck was its transparency. Unlike other lenders, which seemed to want to hide the details of their loan programs, OnDeck clearly defines its loan terms on its website.
Customer Service and Reputation
We were pleased with the customer service we received from OnDeck. To test the company's customer support, we called the lender multiple times, posing as a business owner interested in a loan.
Loan specialists immediately answered our calls, and instead of trying to sell us on a loan, they took the time to answer all our questions. During our calls, loan specialists never rushed through their answers. They all took the time to thoroughly discuss each question. Other lenders gave one- or two-word answers and generally seemed disinterested in making sure we had a clear understanding of how their loans worked. By the end of our calls to OnDeck, we had a clear understanding of its loan programs.
OnDeck also offers live chat support. We used this service several times to further inquire about various aspects of the loans. Live support answered our questions immediately and in just as much detail as we received over the phone.
OnDeck has a solid online reputation, with one of the highest Better Business Bureau scores of any company we reviewed. It's an accredited business, earning an A+ with the company and scoring 4.5 out of 5 stars. Lenders usually have notoriously low BBB scores. Its reviews were consistent with our experience with the company's sales team. Instead of focusing on signing us up for a loan, they made sure we understood the loan process as a whole.
The biggest downside of OnDeck is that it only offers secured loans. However, rather than requiring a specific value of collateral, OnDeck loans are secured by a general lien on the assets of the business and backed by a personal guarantee. This could be a turnoff for some business owners.
While OnDeck has a positive BBB score, we found complaints. According to the BBB website, as of March 2019, 28 complaints have been filed against OnDeck in the past three years. Of those, 28 were resolved to the satisfaction of the complainant, with three being resolved in the last 12 months. Most of the alternative lenders we reviewed had some criticisms levied against them with the BBB. Despite the complaints, OnDeck is an accredited member of the BBB, with an A+ rating.
Another potential negative for businesses with bad credit using OnDeck is the minimum required credit score. Although 600 is one of the lowest minimums of the lenders we examined, it might still be too high for some businesses. The only lender we found that doesn't factor credit score into its approval process is PayPal. This lender isn't one of our best picks, but it does provide a compelling merchant cash advance option. PayPal might also be the best option for online businesses already using the service to collect funds.
Ready to choose an alternative lender? Here's a breakdown of our complete coverage: