An Insider's View: Securing Capital to Grow Your Business

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An Insider's View: Securing Capital to Grow Your Business

© Copyright 2015 OnDeck. All rights reserved. www.ondeck.com

Presented by In partnership with

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33 Hours


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The good news…

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are creating new financing options for business owners like you

Your Needs Technology+


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Industries being disrupted by online platforms

Then Now

Retail banks and credit card companiesCapital Sources

“Brick and Mortar” storesRetail

Traditional travel agenciesTravel

Brokers and classified adsReal estate

Checks, cash and high card feesPayments

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Financing is finally being transformed

Then

Traditional Lenders• Long application process

• Significant paperwork

• Personal credit score-based evaluation

• Lend larger amounts

• Often require very specific, high value collateral


Now

Online Lenders Short application process Less paperwork requirements Data-driven approach Lend smaller amounts Can work with younger businesses Often require blanket lien on entire

business but not specific collateral

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New Financing Options

Loan Matching Site

Crowdfunding Invoice Financing

Online Lending


Non-Profit Lenders

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Non-Profit Lenders

A business partners with a non-profit lender for

micro- and small business loans


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Considerations

• Smaller loan amounts - not ideal for large expansions or projects


Non-Profit Lenders


• Good for startups and microbusinesses

• Good for community-oriented or civic-minded businesses

• Lenders often offer free mentoring or guidance

Benefits

• Depending on the lender, pay low interest and fees, or no interest at all

Payment$

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Good Fits for Non-Profit Loans

Example: an eco-friendly clothing retailer that donates a percentage of each sale to charity needs $10,000 to expand their business.

Who is a fit?• Startups and microbusinesses• Mission-driven businesses • Local businesses in underserved

communities

Possible Sources:• Accion • Kiva Zip• AEO Tilt Forward

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Needs $40,000

Visits Crowdfundingsite and posts business idea

A network of individuals pool

their moneyto support thesmall business

efforts

Crowdfunding


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1. Donation/Purchase-Based Funding

What is it? Individuals commit money to a company or entrepreneur in exchange for products, perks, or rewards Needs

$50,000

Option 1: An entrepreneur has a new idea for a smartphone accessory. - Looking to raise $50,000. - He finds 1,000 individuals looking

to give $50 each.

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Crowdfunding:Two Types


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2. Investment Crowdfunding

What is it? Businesses seeking funding sell equity stakes in their company in exchange for individual capital infusions

Raised $50,000

Option 2: 10 individuals each invested $5,000 in exchange for a combined 10% equity stake in a company.

Crowdfunding:Two Types


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Crowdfunding

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Considerations

• Can be challenging - many projects don’t get funded

• Requires that investors must be “accredited investor”

• Businesses can get in front of potential supporters/investors who can provide financing very quickly

• Allows individuals with limited access to funds the opportunity to participate

• Market validation

Benefits

• Some sites require business owner to pay a fundraising fee (5% of funds raised) or pay a fixed monthly fee during fundraising period

• May have to give equity to investors

Payment$

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Good Fits for Crowdfunding

Example: an aspiring business owner has an idea for a brand new type of kitchen accessory. It will cost $15,000 to design and order the first 5,000 units.

Who is a fit?• Not-yet established businesses

with a great idea for a product• Looking for market validation

Possible Options:• Kickstarter• IndieGoGo• RocketHub• GoFundMe

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A business sells its accounts receivable

to a third party

Invoice Financing


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• Fixed payment on fully advanced amount of your outstanding invoices

• Or, advance a % of your outstanding invoices then pay the remainder net of their fees when they receive payment

Payment$ Considerations

• Typically for larger, more established businesses who are paid on invoice by regular customers

• A business can receive cash quickly instead of waiting for customers to pay invoices

Benefits

Invoice Financing

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Good Fits for Invoice Financing

Example: a baked goods manufacturer has $70,000 in outstanding invoices from long term customers due within 90 days, but they are running into a cash flow crunch. They need $23,000 to solve immediate working capital needs.

Who is a fit:• Businesses that receive regular

payments through invoices

Possible Options:• Blue Vine• FundBox

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Online Business Loans


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• Short applications that don’t require an in-person meeting

• Faster approvals than typical banks

How it Works:

Online

Apply

Review

Approve

1 day – 2 weeks

Fund

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Approval and Capital Access Dynamic


CO

ST

CAPITAL ACCESS


Banks

Factoring

Online Loans

Merchant Cash Advance

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Which Would You Prefer?

%67.5% APR or

22.5% APR


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Which Would You Prefer?

%67.5% APR vs.

22.5% APR $$1,500 interest costvs.

$4,800 interest cost


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$10,000 Borrowed over 6 months


Year 1 Year 2 Year 3 Year 4


It Depends

67.5% APR

$10,000 Borrowedover 4 years


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$10,000 Borrowed over 6 months

Year 1 Year 2 Year 3 Year 4

$4,800 interest cost / lower periodic payments

It Depends

67.5% APR

$10,000 Borrowedover 4 years


22.5% APR

$1,500 interest cost / higher periodic payments

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Considerations

• No startups, and not available for all industries

• Access and interest rates are correlated

• Loan amounts and term lengths vary by company

• Approvals can be extremely fast

• Decisions based on more than just personal credit

• Ideal for business opportunities with an expected shorter term ROI

Benefits

• Fixed interest and fixed payments auto-debited from your business bank account on a daily, weekly or monthly basis

Payment$

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Good Fits for Online Small Business Loans

Example: Well established restaurant that wants to add outdoor seating. They need $75,000.

Who is a fit:• Established businesses, already

generating revenue

Potential Sources:• Funding Circle• SmartBiz• Kabbage• OnDeck

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Needs $40,000

Visits Matching Siteto find lender

Matching Sitefilters info and suggests best

lending options

Loan Matching Site


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Loan Matching Site


Considerations

• Must still apply with each individual lender

• Often still dealing with traditional lenders and their strict requirements

• May connect you with a broker, not a lender

• Borrowers can get in front of significant numbers of lenders very quickly

• Filters out lenders that are not a match

• Can help you find lenders you normally would not find

Benefits

• It won’t cost you anything to use a loan matching site

• Sites earn referral fees from whichever lender you found

Payment$

Potential Sources:

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How do you know what product is right for you?


Loan Matching Site

Crowdfunding Invoice Financing

Online Lending

Non-Profit Lenders

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Capital Needs and Considerations

Amount

Duration

Return

Cash flow

Buy inventory Purchase equipment

MarketingHiring Open new locations


Cash flow management New business idea

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Financing Need Loan Amount Lending Product

Loan Matching Site

Online Business Loans - Longer Term

Open a new franchise location $300,000

Online Business LoansShort Term

Buy discounted inventory in 4 days $75,000

Develop new product Crowdfunding$15,000

Sample Financing Scenarios

Invoice FinanceManage cash flow during receivables gaps $23,000

Online Business LoansShort Term


Launch first marketing campaign $5,000Non-Profit Lender

Non-Profit Lender

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What types of financing can I qualify for? Which of those is the best fit for my business? How much do I really need? Do I have all the information I’ll need?

Before You Start Your Search: Your 4 Question Checklist

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OnDeck’s educational website, dedicated to simplifying small business lending

Thank YouFor more information about the world of online lending, visit:


Small Business & Entrepreneurship

An Insider's View: Securing Capital to Grow Your Business