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Let’s say you put your small business’s product on Groupon, and you’re seeing a huge spike in sales. This is wonderful for your small business, but there’s one problem: you don’t have the capital necessary to cover the extra cost of increased sales.
You can’t go for an SBA loan to cover the cost because SBA funding will take 1 – 6 months to appear in your bank account. You need something that can be turned around in 1 – 4 days to get these orders out.
Kabbage and OnDeck are two short-term lenders with a fast turnaround time on loans. Their application process is a breeze, their loan requirements are much less stringent than a traditional bank loan, and you can get the funding as fast as the same day you apply.
But there is a catch: these short-term loans can be more expensive when compared to traditional loans. Kabbage and OnDeck assume a higher risk by providing a wider variety of businesses the money they need faster, thus they charge higher interest rates and fees. Below, we dive into just how high those fees are, what you’ll have to go through to get a loan, and which lender is a better fit for your business.
Kabbage
Kabbage’s application process is simple and transparent. It offers lines of credit up to $250,000 with 6- and 12-month repayment terms. Once you are qualified you can get your money almost instantly and you’re not obligated to use the line of credit — one of the biggest benefits of a business line of credit vs. a term loan.
To qualify for a Kabbage line of credit, your company must be in business for at least a year and you need to have minimum annual revenue of $50,000 (or $4,200 a month for the past 3 months). They will also take into account your personal credit history. (You can check your personal and business credit for free on Nav.)
Kabbage has a page that allows you to instantly calculate the average cost of their credit lines. Kabbage charges a monthly fee rate that’s determined based on your credit risk factors and ranges from 1.5% to 10% of the loan amount. That fee rate is paid at the beginning of the loan, then drops to 1% for the remainder of the loan term. For example, if you’re approved for a $100,000 line of credit at a 3% fee rate and a 12-month term, you’d pay a $3,000 fee every month for the first six months of the term, then $1,000 a month for the last six months. If you opt for that same amount and a 3% fee rate for a 6-month term, you’d pay a $3,000 fee for the first two months, then $1,000 a month for the last four months of the term.
One of the new features of the Kabbage line of credit is that borrowers can apply for the Kabbage Card, which operates somewhat like a debit card and allows them to draw on their Kabbage line of credit anywhere Visa is accepted. The ease of use is appealing for busy business owners who want to have purchasing power in their wallet when they need it.
OnDeck
OnDeck actually a few different types of financing products for business owners. They have a term loans ranging from 3-36 months and a 6-month line of credit. (Note: OnDeck also offers equipment financing, though that financing type may not be a good fit for most businesses, so we just stuck to lines of credit and term loans for this review.) They offer their term loans from $5,000-$500,000, and lines of credit up to $100,000. The application process takes about 10 minutes and you can get your money in one day.
To qualify for an OnDeck term loan, your business must be at least 1 year in business, have $100,000+ in annual revenue, and you must have a personal credit score of 500+. Companies looking to qualify for the line of credit will need to be in business at least one year with $200,000+ in annual revenue, and at least one owner with a 600+ personal credit score.
To apply for an OnDeck loan, you’ll need to go through 5 steps: input the name of your business followed by more detailed business information, next is personal information about the owners, financial needs and bank statements.
OnDeck’s line of credit product is similar to Kabbage’s financing product. A $10,000 line of credit through OnDeck paid back over 6 months is charged a rate of 36% plus a $20 monthly maintenance fee. Thus, the total payback amount is $10,961.46 + 6x($20 maintenance fee) = $11,81.46. The total cost of the loan is is $1,181.46, just under Kabbage’s $1,200 for a similar product.
OnDeck’s term loan product offers larger loan amounts at lower interest rates. For example, OnDeck advertises here that a $25,000 loan with a 6 month term has an average interest rate of 17%. If you add the origination fee, the APR is 25.96%. The total financing cost will be $1,879.11.
To compare OnDeck’s $25,000 term loan to Kabbage’s working capital loan is hard because the products are so different — Kabbage advertises the same average APR for a $25,000 line repaid over a 6 month period as they do for their $10,000 line. The APR is 41.38% and the business owner will have to pay back $28,000, giving the loan a total cost of $3,000.
It can be difficult to try to decipher OnDeck’s loan products. Their product description pages pose confusing terms regarding the total cost of their loans. For example, on this page, they list an APR of 36% for all lines of credit, but they leave the $20 monthly maintenance fee separate from their APR, which would actually make the APR a few points higher. On this page, they list simple interest instead of APR, and note below the 2.5% origination fee which also brings the cost of their loans up significantly.
So. Which One is Best?
| Kabbage – working capital loan | OnDeck – business line of credit | OnDeck – 24 month term loan | |
| Qualifications | business must be in business for at least 6 months. They will also take into account your revenue for the past year and personal credit history. | business must be one year in business, with $200,000 in annual revenue, and at least one owner with a 600+ personal credit score. | business must be at least 1 year in business, have $100,000+ in annual revenue, and a personal credit score of 500. |
| Amount | $2,000 – $100,000 | up to $20,000 | $5,000 – $250,000 |
| Repayment Period | 6 months | 6 months | 3 – 24 months |
| Average cost of $10,000 loan over 6 months | $1,200 | $1,181.46 | ~ $751.65 |
| Average cost of $25,000 funding over 6 months | $3,000 | — | $1,879.11 |
| Early prepayment penalty | No | Yes | No |
| Time to fund | Instant | 24 hours or more | 24 hours or more |
| Personal Guarantee Required | No | No | Yes |
Like with any loan you may consider, which lender you choose will depend on what your exact needs are. If you need the money right away, or have less than one year in business, you should look into Kabbage’s working capital product. The application is easy, they are transparent about fees, and they have great customer service according to reviews from current customers.
For businesses that want the flexibility of borrowing a variable amount each month, a line of credit will be the better option. With a line of credit, you will only have to repay for the money you withdraw. Through Kabbage’s line of credit there is no prepayment penalty, but keep in mind that Kabbage front-loads their fees, meaning you will pay more in the first 2 months of your line of credit and less in the last 4 months. OnDeck’s line of credit is slightly cheaper, but they do charge a prepayment penalty.
If you need a larger loan amount or are simply looking for the lowest cost option, OnDeck’s term loan will likely be the better choice. However, if you think you can qualify for OnDeck’s term loan, you should consider looking at other lenders with more transparent rates and lower APRs.
To see what funding you qualify for based on your business credit score, check out the term loans offered in Nav’s Marketplace.
This article was originally written on September 2, 2015 and updated on October 17, 2019.
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