The latest issue of QSR – the leading journal of the quick service restaurant industry featured an article about the state of financing for restaurants titled “Where’s the Money Now?”.

On Deck Capital CEO Mitch Jacobs was interviewed for the piece, discussing the current lending market and how On Deck uses technology to identify healthy businesses:

[On Deck] decides whether to advance a loan based on a computerized data-gathering system that looks at a business’ online banking account, credit card processing, credit scores, and other factors. This saves business operators from lugging stacks of records to banks to initiate a lengthy application review.
“It is 80 hours of labor boiled down to 15 minutes,” Jacobs says.

To date, On Deck has provided more than $80 million in loans, much of it to restaurant operators, who make up 20 percent of its clientele. On Deck’s typical restaurant client has three to four locations, and revenues from $250,000 to $4 million. Instead of its clients paying back the loans in monthly installments, On Deck automatically receives daily micropayments of about $100 from their bank accounts.

Jacobs criticizes commercial banks for dealing with small businesses as if they were individuals and putting undue emphasis on the applicant’s personal credit score.

“It was very clear to me back in 2006 that the U.S. financial system had no category of products that was for Main Street small businesses,” Jacobs says. “The banks were offering consumer products to Main Street small businesses as a work-around.”

In looking comprehensively at a business’ financial viability, On Deck is a lending model tailored to small businesses. And with so many aspects of the financial system being called into question, it may be a sign of where commercial lending is headed.

“This is a rare moment in time where some really good things could happen for [small businesses] regarding access to capital,” Jacobs says. “Because the personal credit scoring system is regarded as broken, banks are going to have to seek an alternative … that works in favor of the small business owners instead of against them. And that has not been the case.”

You can read the whole article here.

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