BACKGROUND AND DEFINITIONS | Opportunities and Challenges in Online Marketplace Lending | 13
as 580.
26
Some online marketplace lenders are
accepting applicants without FICO scores or
with short credit histories and making credit
decisions based on the applicant’s college,
school, and current income.
27
Small Business Credit Market
For small businesses, challenges in access
to credit extend beyond the cyclical
pressures imposed by the nancial crisis.
Small business lending historically has
high search, transaction, and underwriting
costs for depository institutions relative
to earnings potential. Extending busi-
ness loans entails signicant xed costs
associated with underwriting, servicing,
and collection which makes smaller loans
particularly challenging. According to 2015
Small Business Credit Survey published
by the Federal Reserve Banks of Atlanta,
Boston, Cleveland, New York, Philadelphia,
Richmond and St. Louis, only half of small
employer rms received the full amount
of nancing requested.
28
Microbusinesses
(less than $100,000 in annual revenue) and
startups (those in business for two years or
less) in 2015 had the hardest time securing
nancing with 63 percent and 58 percent,
respectively, reporting a nancing shortfall.
29
In response to the longer application,
underwriting and processing time associated
with traditional loans, small businesses are
increasingly turning to online marketplace
lenders as potential nancing sources. e
largest small business online marketplace
lending platforms originated approximately
26. Kroll Bond Rating Agency, “Kroll Bond Rating Agency Assigns Preliminary Ratings to Avant Loans Funding Trust 2016-B,”
April 20, 2016.
27. Earnest company website, https://www.earnest.com.
28. e Federal Reserve Bank of Atlanta, Boston, Cleveland, New York, Philadelphia, Richmond and St. Louis, “Small Business
Credit Survey 2015,” March 2016, https://www.newyorkfed.org/smallbusiness/joint-small-business-credit-survey-2014.html.
29. Ibid.
Total Originations (dollars in billions)
Year
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
2011 2012 2013 2014 2015
OnDeck (ONDK)
Figure 9: OnDeck Originations 2011 – 2015
Source: OnDeck 10-K filings from 2014 to 2015 and IPO filings.
Total Originations (dollars in billions)
Year
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
2011 2012 2013 2014 2015
OnDeck (ONDK)
Total Originations (dollars in billions)
Year
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
2011 2012 2013 2014 2015
OnDeck (ONDK)
Box 1: SBA 7(a)
The 7(a) Loan Program is SBA’s primary program for helping
start-up and existing small businesses, with financing
guaranteed for a variety of general business purposes. SBA
does not make loans itself, but rather guarantees loans
made by participating lending institutions. 7(a) loans have
a maximum loan amount of $5.0 million. The maximum
maturity of loans used to finance fixed assets other than
real estate will be limited to the economic life of those
assets, in no instance to exceed 25 years. Interest rates
are negotiated between the borrower and the lender but are
subject to SBA maximums, which are pegged to the prime
rate, LIBOR, or an optional peg rate. Interest rates may be
fixed or variable. SBA can guarantee up to 85 percent of
loans of $150,000 and less, and up to 75 percent of loans
above $150,000. This standard applies to most variations
of the 7(a) Loan Program.