Getting a business loan from a bank can be a nightmare even if you’re well qualified, because they’re slow and require tons of paperwork. Short term loan providers have stepped in to make getting a business loan easier for small businesses. In this article, we review the rates, terms, and qualifications of the two best short term business lenders: Kabbage vs OnDeck Capital.
Best Short Term Business Loan Provider: OnDeck
We recommend an OnDeck business loan over a Kabbage loan because they offer lower rates for prime borrowers and can originate much larger loans. OnDeck can get you a term loan much quicker than traditional financing lenders, like banks. Plus, on average, OnDeck is half as expensive as a merchant cash advance.
Loan Amount: $5K – $500K
Terms: 3 – 36 Months
Starting Rates: 9.99%
Expected APR Range: 30-50%
Funding Time: 1-3 Days
Credit Score: 500+
When Kabbage is the Best Short Term Business Loan Provider:
A Kabbage business loan can be a better fit than OnDeck if you can’t meet OnDeck’s revenue requirements or if you require monthly repayment terms. Kabbage business loans are much quicker and easier to get approved for than a traditional bank. They’re also more affordable than a merchant cash advance.
Loan Amount: $2K – $250K
Terms: 1 – 12 Months
Starting Rates: 15%
Expected APR Range: 30-50%
Funding Time: 1-3 Days
Credit Score: 550+
Kabbage vs OnDeck Summary
|Expected APR Range|
*Updated: August, 2018
Why We Chose OnDeck Capital as the Best Short Term Business Loan
We believe OnDeck gives small businesses the best chance of getting approved for a short-term business loan. Business owners only need a credit score of 500+, $100K in annual revenue, and at least 1 year of operating history to be considered. Many other providers of short-term loans require credit scores upwards of 600+ and up to two years of business history.
Another reason we like OnDeck Capital loans is that compared to other financing options, they’re very fast to approve and fund your loan. The application is online and there’s very little paperwork that you have to submit. You can get approved the same day that you apply and funded in as little as 1 business day. Usually, there is no hard credit check, so applying for a loan will generally not have any impact on your credit score.
The third reason we chose OnDeck is loan size and terms. They tend to approve much larger amounts than their competitors, including Kabbage. OnDeck provides loans up to $500K and may approve a loan for as much as 15% of a business’s annual revenues. You can choose repayment terms between 3 – 36 months based on what you plan to use the loan proceeds for and how much you can afford to repay monthly.
The interest rates charged by OnDeck can be higher than traditional bank loans, but well qualified borrowers can actually see rates as low as 9.99%. And even with average APRs of ~40%, OnDeck gets great customer reviews. That might have something to do with the fact that returning customers can qualify for lower interest rates and lower origination fees.
When You Should Consider a Kabbage Loan Instead of OnDeck
Kabbage issues loans for 12 months or less and has a maximum loan size of $250K. If you need a small business loan for a short period of time, Kabbage may be your best choice.
Very small businesses will have trouble meeting OnDeck’s minimum annual revenue requirement of $100K per year, but Kabbage only requires $50K.
In addition, Kabbage loans have added flexibility because they work like a line of credit. You get a maximum amount of money that you can draw from as needed, and you only pay interest on money that you use. As you pay off what you borrow, those funds become available to you again (like a credit card). OnDeck also offers lines of credit, but the qualification requirements are stricter than Kabbage.
While Kabbage customers don’t provide as glowing reviews as OnDeck’s, Kabbage also gets good reviews. One of their best features is that they require monthly payments, where OnDeck requires payments every week. Kabbage is also quick to fund and like OnDeck they can get you the money you need in as quick as 1 day.
OnDeck & Kabbage Competitors
OnDeck and Kabbage are both great at offering short term working capital. However, this doesn’t mean there aren’t viable alternatives. For example, you may qualify for a more affordable loan if you have outstanding customer invoices or if you process your customer payments with a specific service like Square or PayPal. Further, if you need a longer term loan, then an OnDeck or Kabbage competitor may be best.
Common OnDeck & Kabbage Competitors
|BlueVine||Flexible business lines of credit up to $250K. (Best line of credit.)|
|Fundbox||Invoice financing that works like a line of credit up to $100K.|
|Small Business Credit Card||Businesses that need a smaller revolving credit line with cash back and rewards.|
|Square Capital||Companies that accept payments through Square and need up to $100K in financing.|
|PayPal Capital||Companies that accept payments through PayPal and need up to $100K in financing.|
|StreetShares||A range of financing options including lines of credit and term loans.|
|SmartBiz||SBA 7(a) loans that can fund in as little as 30 days.|
When to Apply With BlueVine
BlueVine offers two main products. One is invoice factoring based on the value of your invoices and the other is a business line of credit with a minimum credit score of 600+. You’ll want to use BlueVine over Kabbage or OnDeck if you have a low personal credit profile or if you have a lot of outstanding customer invoices (up to $5 million).
When to Apply With FundBox
Fundbox also offers a no credit check business line of credit with up to $100k in financing. If you only need up to $100K in financing and don’t want your personal credit to factor into your approval, then FundBox is a good Kabbage and OnDeck competitor to consider.
When to Apply With Square Capital
If you currently process a large number of your customer payments through Square then you could qualify for up to $100k in financing through Square Capital. This is a niche based financing option but could be a good capital source for Square users looking for a OnDeck and Kabbage competitor.
When to Apply With PayPal Capital
Like Square, PayPal also has a capital wing of their business that focuses on lending money to merchants who process payments through PayPal. They also offer their merchants up to $100k in financing. If you already use PayPal on a consistent basis then PayPal Capital could be a fast financing solution.
When to Apply For Small Business Credit Cards
Small business credit cards aren’t typically considered a Kabbage or OnDeck competitor, but they can be a good alternative solution if you need a small amount of capital. In fact, small business credit cards are great to have in any business’s financial toolkit regardless of what other capital you have.
When to Apply With StreetShares
StreetShares is an OnDeck and Kabbage competitor that offers longer term loans and line of credit products to borrowers with stronger credit profiles. If you want a more affordable loan with a longer term, this could be a good alternative option for you.
When to Apply With SmartBiz
SmartBiz offers fast SBA loans of up to $350k for working capital in as quick as 30 days. If you’re a prime borrower and can wait a month or more for financing, then this is a great solution.
In-Depth Comparison: Kabbage vs OnDeck
It’s important to understand each aspect of OnDeck and Kabbage loans in more detail to fully understand how they compare to one another. Below we’ll look at loan requirements, terms, and costs to give you a better idea of which lender is the best choice for your business.
When applying for a short term business loan, the three main qualification requirements that the lender will consider are credit score, revenues, and time in business. Kabbage is easier to qualify for than OnDeck in terms of business revenues, with $50K+ annual revenues requirement while OnDeck requires $100K+. However, in terms of credit score, OnDeck is easier to qualify for, with a 500+ requirement compared to 550+ for Kabbage.
OnDeck is the big winner if you need financing north of $150K because that is the maximum you can get with Kabbage. While both companies can get you funded for small amounts, OnDeck will loan up to $500K for businesses with better revenues and longer operating histories.
OnDeck and Kabbage offer very quick business loans. Despite the fact that they have a pretty high cost of capital, most customers seem to be willing to go back for a second or third loan from these alternative lenders. The speed of funding is very helpful and convenient, even for prime borrowers who have the capacity to repay the funds quickly.
Rates, Costs, & Repayment Terms
The convenience of short terms loans comes at a price, which is why the APR on a short term loan is relatively high compared to more traditional financing. The Annual Percentage Rate (APR) is the cost of a loan over one year, including interest and fees. Compared to the interest rates on a home mortgage or car loan, the APR for short term loan providers may seem exceptionally high.
OnDeck loans and Kabbage loans have similar costs, with both companies reporting average APRs of ~40%. However, at 9.99%, OnDeck’s lowest possible rate for prime borrowers is lower than Kabbage’s. The average APR’s include OnDeck’s origination fee of 2.5% on every loan, which is taken out upfront from your total loan amount. Kabbage charges a single interest fee on their loans per month with no additional fees.
In other words, if you need funds to buy inventory, make payroll, or meet some other short term business needs, paying 50 % APR over 9 months may be preferable to paying 5 % APR over 10 years.
OnDeck and Kabbage both downplay APR when working with borrowers. Instead, they like to focus on the dollar amount that the borrower will have to pay back over the life of the loan, which is called the factor rate.
A factor rate of 1.3 means that the borrower would have to pay back 1.3 times the original loan amount. For example, on $100,000 borrowed, a company would have to pay back $100,000 in principal and $30,000 in interest/fees over the life of the loan. One common mistake is to think a factor rate of 1.3 equals a 30% APR. This is most likely not true. Depending on several factors, a 1.3 factor rate might equal a 70% APR or higher.
The average APR for OnDeck business loans was 40.6 % in the first quarter of 2016. Kabbage, which is not a publicly traded company like OnDeck, told us that risk analysts in two separate offices confirmed an average APR of ~40%.
While each company advertises lower possible rates, we expect the typical Kabbage and OnDeck borrower to pay between 30% – 50 % APR. This interest rate could be lower or higher depending on the creditworthiness of the borrower, the amount of the loan, and when the loan is paid back.
It’s important that the repayment schedule of a working capital loan fits within a small business’s normal cash flow. Some small businesses will have no problem adhering to a daily or weekly repayment schedule. For other businesses, monthly payments may seem like the only repayment schedule that will work.
Personal Guarantee & Collateral
A personal guarantee means that you’re personally responsible for payment of a loan. If your business goes under and you can’t afford the loan payments, the lender can make you turn over your personal assets (e.g. your car or home) to pay off the loan. A personal guarantee is common with most small business borrowing and both OnDeck and Kabbage require a personal guarantee.
Collateral is an asset or assets that you pledge as security for a loan. Most traditional bank business loans require you to put up specific collateral, such as business equipment or machinery, as backing for the loan. Neither OnDeck or Kabbage requires collateral.
However, OnDeck places a UCC lien on your general business assets for all loans, and Kabbage does so for loans above $20K. This means that the lender can seize any and all business assets if you’re unable to pay back the loan.
While customer service may not be the first thing you think of when comparing lenders, good customer service can save you a lot of headaches. You might have a problem with your loan, or have a question you need to be answered quickly. If this happens, you need to have confidence that your loan provider will be there to help you.
Both lenders have additional features beyond what has already been discussed that make managing your loan very convenient. These services range from making online payments on the go to easily being able to reach a customer service representative.
Small business owners are busy and not always behind a desk. This is why it’s essential in today’s business world for financing to be available on mobile devices. Kabbage and OnDeck do this by having their own mobile apps. Each app is easy to use and will help you stay up to date with any outstanding loans you have.
OnDeck Mobile App
OnDeck’s mobile app is designed to help you manage your loan in a single place. The app gives an account overview of where you stand on each loan you currently have in repayment. You can also easily check the status of all account transactions including the loan payments you have made.
OnDeck’s mobile app also makes it easy for you to get the answers you need from their customer service team. They provide contact information for your individual loan specialist and information on contacting the general support department. You can email or call their support team directly from the app.
OnDeck also offers a business line of credit in addition to a short term loan. Once you are approved for the OnDeck line of credit, you can use their mobile app to withdraw funds from that line quickly and easily (shown in the middle picture above).
Kabbage Mobile App
Kabbage also has a helpful mobile app for you to oversee your loans. The app allows you to see an overview of each of your current loan balances and any transactions made on your account. You can quickly make your loan payments directly through the app when you are away from your desk.
One feature that is unique to Kabbage’s mobile app is the ability to apply for a Kabbage loan directly through the app. They make it very easy to enter your information and get pre-qualified for a loan in just a few minutes. The whole process takes place in the app, and when you’re approved you can get connected to a loan specialist.
OnDeck Reviews vs Kabbage Reviews
OnDeck and Kabbage both get pretty good customer reviews. Both are able to retain customers for multiple loans despite their high APR costs. This speaks volumes to the customer service of each, which we have found to be very good with both businesses. However, past customers rank OnDeck a bit higher on overall satisfaction than Kabbage’s customers do.
Kabbage vs OnDeck Loan Originations
The graph below shows how much money each lender has loaned out from the inception of their business to 2017. Both companies have initiated more than enough loans for you to be comfortable with them, but businesses have borrowed twice as much from OnDeck as they have Kabbage.
Understanding How Much Your Loan Will Cost
The language and details of a loan can be difficult to understand, and they often sound very different from one lender to the next. You shouldn’t need a finance degree to figure out how much you’re going to pay for a loan.
OnDeck and Kabbage are part of a group of lenders who have come together through the Innovative Lending Platform Association (ILPA) to provide a disclosure tool that can help you better understand and compare the true costs of their loans. This disclosure is available after the application process, but before you commit to the loan.
SMART Box Capital Comparison Tool
The SMART Box tool helps you understand and compare the costs of small business financing. It does this by giving you 5 different ways to measure the cost of your loan so that you can compare it to other loan products as you shop around. SMART Box then defines each measurement (such as APR) in plain English so that you know what you are looking at.
The need for a tool like Smart Box arose because short term loan providers often describe the cost of their loans using something other than APR (the measurement most consumers are familiar with). They do this because short term loans almost always have higher APRs than long term loans. What resulted was a confusing, irregular mix or measurements that left business owners in the dark.
“The SMART Box was built with the small business owner in mind. The SMART Box will further empower the small business owner to fully assess and compare financing options and make the right decision for themselves. We believe the SMART Box tool really moves the needle as far as informing the small business owner.”
How SMART Box Can Help You
The SMART Box tool will help give you a better picture of your total cost of capital when you are analyzing a potential loan. This will allow you to:
- See if the loan is affordable
- Easily compare it to similar loan products
- Even compare it to dissimilar loan products.
SMART Box will not only provide you with actual numbers and percentages to analyze, but it will give you plain English explanations of what those numbers mean to your business.
The SMART Box disclosure will give an overview of your loan amount, disbursement amount, repayment amount, and term.
Additionally, here is a list of common cost metrics that the SMART Box disclosure will give you:
- Total cost of capital
- Annual percentage rate (APR)
- Average monthly payment
- Cents on the dollar (amount of interest paid per dollar borrowed)
- Prepayment penalties
Here is an example of what the SMART BOX disclosures look like:
Overall the SMART Box tool is a great way to measure your loan costs more accurately and to compare those costs against other options. Both OnDeck and Kabbage currently provide this disclosure after you finish the application process, but before you accept the loan. Before you take out an online business loan, look for the SMART Box disclosures.
Kabbage vs OnDeck: Ownership
Whenever you borrow money you should be aware of where it’s actually coming from. The ownership structure will give you a good idea regarding the future of the business, which is important because you want to borrow from a stable lender.
Kabbage vs OnDeck: Company Valuations
As a public company, OnDeck is required to regularly report its earnings, and the total value of their business is their market capitalization, which is the value of their current outstanding shares. Kabbage is a privately held company so valuations available to the public are rare.
Bottom Line: Kabbage vs OnDeck
Small business owners are lucky to have so many options today to get short term working capital, with OnDeck and Kabbage leading the way. We recommend OnDeck overall for small businesses because they loan larger amounts of money with longer terms. A Kabbage loan is a good option for small businesses that generate lower revenues of $50K – $250K, or who need monthly payment terms.
OnDeck loans go up to $500K with terms of 3-36 months. If you have $100K+ in annual business revenue, a credit score of at least 500, and have been in business for a minimum of 1 year, then you can pre-qualify online today within a few minutes. OnDeck is easy to apply for and can fund your loan as quickly as 1 day.