According to the Wall Street Journal, the web-based small business lender OnDeck Capital Inc. is preparing to file for an initial public offering that could value the business at roughly $1.5 billion. Also preparing for an IPO is the fast-growing peer-to-peer lender Lending Club Corp. with a valuation of more than $4 billion. Quote:

Online business lenders such as OnDeck use the web to distribute loans, rather than branches. They use algorithms to determine creditworthiness based on a business’s activity, including things such as social-media ratings, rather than just credit scores or bank records…OnDeck has arranged more than $1 billion in financing for other businesses, via more than 20,000 loans, since it launched in 2007. Its loans range from $5,000 to $250,000 and are typically repayable in three to 24 months.

Online nonbank lenders provided an estimated $3 billion in loans to small businesses last year, more than double the prior year, according to lender Business Financial Services. The sector has drawn scrutiny for charging interest rates that are sometimes far higher than other forms of credit. Some regulators have questioned whether using online metrics, such as Yelp reviews, is fair to borrowers.

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