December 17, 2014 / 4:06 PM / 3 years ago

Online lender OnDeck Capital's shares soar in debut

(Reuters) - Shares of OnDeck Capital Inc, an online lender to small businesses, rose as much as 39 percent in their debut, valuing the company at about $1.84 billion.

The company's successful debut follows that of online loan marketplace LendingClub Corp, whose shares rose as much 67 percent in their debut last week.

The company's shares touched a high of $27.74 amid heavy trading on Wednesday. The stock was the biggest gainer on the New York Stock Exchange.

Companies such as OnDeck Capital and LendingClub are cashing in on the demand created by the reluctance of cash-strapped traditional banks to lend to small businesses.

OnDeck makes loans using its own pool of funds to small businesses such as hair salons and doctor's offices, unlike LendingClub, which connects borrowers with lenders on its peer-to-peer network.

Jay Ritter, an IPO expert at the University of Florida, said investors were showing optimism that LendingClub and OnDeck could compete profitably with traditional banks.

OnDeck has lent more than $1.7 billion to small businesses and collected more than 4.4 million payments since its launch in 2007. Loans typically range between $5,000 and $250,000.

The company charges a fee of 2.5 percent per loan plus interest for loans of 6-24 months.

There is a potential $80 billion-$120 billion in unmet demand for small business lines of credit, OnDeck Capital said in its IPO filing, citing a report by Oliver Wyman, a unit of Marsh & McLennan Co.

OnDeck's investors include First Round Capital, Google Ventures, Institutional Venture Partners, Tiger Global Private Investment Partner and SAP Ventures.

OnDeck raised $200 million after its initial public offering was priced at $20 per share, well above the expected range of $16-$18.

Morgan Stanley, Merrill Lynch, Pierce, Fenner & Smith, JP Morgan Securities and Deutsche Bank Securities are among underwriters to the IPO.

Reporting by Neha Dimri in Bengaluru; Editing by Saumyadeb Chakrabarty

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