Off the back of its recent IPO, OnDeck has announced the launch of OnDeck Marketplace, a platform that enables institutional investors to purchase small business loans.
The launch of OnDeck Marketplace is the result of increasing demand from institutional investors, including asset managers, hedge funds and business development companies. The Marketplace has undergone a one year pilot programme with a select group of institutional investors. To use the platform each institutional investor opens its own OnDeck Marketplace account, purchases loans on a programme basis and then receives daily principal and interest payments from the loans. In order to make for a seamless, transparent and efficient process OnDeck services the loans.
“Institutional investors have been seeking a platform to gain credit exposure to Main Street business loans at scale. OnDeck Marketplace is a natural extension of the increased predictive power of our OnDeck Score, and further diversifies the company’s sources of revenue and capital.”
One of the main drivers behind the Marketplace is the platform’s OnDeck Score, a business credit score that leverages big data for small business customers rather than relying solely on the small business owner’s personal credit history. This is OnDeck’s way of adding value to the FICO score and of singling out businesses that may have been overlooked by more traditional funding sources. Loans in the Marketplace will be graded A to F, mostly based on their OnDeck Score, allowing institutional investors to better evaluate the risks of investing in these loans.
Christopher Johnson, managing director at Prospect Capital Management, added:
“OnDeck has created a platform to give institutional investors the opportunity to participate in its small business loan origination program. We chose to join as one of the inaugural investors in OnDeck Marketplace because we were impressed with the ability of the company’s OnDeck Score to help generate attractive returns.”
The launching of the Marketplace brings the OnDeck model closer to that of Lending Club, as currently OnDeck holds most of the loans it makes on its balance sheet, which many perceive to be a far riskier model. The company’s new Marketplace to be an important part of its multiple funding sources strategy and it follows several other recently implanted company initiatives. Such as the first securitization of non-SBA small business loans and of course floating on the NYSE in December last year.
On its first day of trading OnDeck’s shares closed at $27.98. Since then the share price has been in continual decline and has fallen to $16.87 as of close yesterday. Perhaps OnDeck’s new Marketplace will help boost the flagging price of its stock.