OnDeck Capital and Lending Club: Both Compelling but Different

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Yesterday, BTIG analysts Mark Palmer and Giuliano Bologna initiated coverage on the shares of OnDeck Capital with a Buy rating and $25 price target. The analysts believed that the small-business lending platform is positioning the firm towards sustainable and outsized growth.

The analysts issued a new report on Wednesday indicating that investors were asking how OnDeck Capital compares with Lending Club. Last December, Palmer and Bologna initiated a Buy rating with a $31 price target for Lending Club.

OnDeck Capital takes risk, Lending Club does not

Ondeck Capital and Lending Club offer online alternative to traditional bank lending, but the business models of the alternative lenders are substantially different, according to the analysts.

Palmer and Bologna said Lending Club does not take credit risk while OnDeck Capital takes risk—the most obvious difference between the two alternative lenders.

According to the analysts, Ondeck Capital takes risk by using its balance sheet to originate loans (75% of the loans it originate are held on its balance sheet).  The firm earns interest income on loans it hold and origination fees.


Lending Club does not take risk by bringing together borrowers and investors to its market place. The firm earns fees from borrowers and investors for facilitating loans.

OnDeck Capital, Lending Club differ on business focus

The second primary difference between the alternative lenders is the fact that OnDeck Capital is entirely focused on small businesses by providing term loans and lines of credit. Lending Club is mainly focused on consumer credit by helping individuals refinance their high-APR credit card debt or to finance major purchases.

In addition, the analysts said OnDeck Capital and Lending Club differ in terms of how the alternative lenders source funds for the loans each facilitate.

OnDeck Capital obtains funding primarily through debt facilities. Its funds also come from securitizations and OnDeck Market Place. On the other handing, Lending Club gets funding from individual or institutional investors.

Value propositions are not similar

Palmer and Bologna said the value propositions of Ondeck Capital and Lending Club are both compelling, but quite different.

According to them, Lending Club allows individuals with significant credit card balances and high APRs to reduce their borrowing costs by an average of 68obps while offering investors an average yield of 8.6%.

On the other hand, OnDeck Capital allows small businesses to apply for a loan online at any time, receives a decision in just 15 minutes and funding on the approved loan within the same day.

The analysts emphasized that Lending Club “offers better economics on both sides of the borrower –investor equation” while OnDeck Capital “offers convenience, speed and access to capital where it might otherwise be available.”


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