Why OnDeck and CAN Capital Nailed Their Treasury RFI Responses

October 1, 2015 | By: Sean Murray

A congressional staffer once told me that if you want your input to have any meaningful impact, you better bring hard statistics and numbers.

Both CAN Capital and OnDeck accomplished that in their comprehensive responses to the Treasury RFI.

OnDeck went a step further and even attached case studies that included photographs of actual small business owners they’ve helped. They also put to bed the notion that their business model is unregulated:

At the federal level, we are regulated by the SEC and subject to US securities laws. We further satisfy applicable lending requirements under, among others, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Equal Credit Opportunity Act, and sanctions programs administered by the Office of Foreign Assets Control (OFAC).

They also clue us in to the size of the potential market they’re in. “It is estimated that there is $80-$120 billion in unmet demand for small business lines of credit,” they wrote.

Notably, they support the logic that a short term high APR loan can make more financial sense than a long term low APR loan. “With respect to loan cost, by matching a loan’s term with the estimated investment payback (or ROI) period, a small business can minimize total overall interest expense. For example, a loan used to purchase inventory can have a payback term that corresponds to the expected sale of the inventory — in this way, a borrower may pay less in total interest expense on a higher-rate, short-term loan than on a lower-rate, long-term loan (which may take weeks or months to procure).”

Meanwhile, CAN Capital explained just how time consuming the process can be for small business owners. “On average, a small business owner might spend over 30 hours applying for credit from a traditional lender and wait weeks or longer for the underwriting process to run its course and the funds to be disbursed, assuming the loan request is approve,” they wrote.

CAN’s response at time reads like an S-1 registration form (could there be a reason for that?). “Our approach to assessing the risk of small businesses and their ability to pay has been very effective, as manifested by our lifetime weighted average net write off rate of 7.2% over 17 years and more than $5.3 billion in funding transactions,” they say. “For returning customers that access capital through our platform more than once, we see an increase in their gross sales of approximately 7% on average between their first and last funding transaction.”

And if you don’t want your data sources to be questioned, the easy thing to do is cite governmental studies which both companies did often. “Traditional lenders are not serving the capital needs of small businesses. This is especially true when small businesses need $100,000 or less, which accounts for 90% of small business loans,” CAN wrote while citing a report published by the SBA’s Office of Advocacy.

Download CAN Capital’s full response here

Download OnDeck’s full response here

Last modified: October 1, 2015