With recently raising a $15 million series C round of financing, making more than $100 million in loans to small businesses and turning 5 years old, it’s no wonder why On Deck Capital views 2011 as the year banks will incorporate its technology into their businesses. 

On Deck Capital, a technology platform that connects Main Street directly to capital, plans to establish commercial bank capital sources, rather than rely on private capital sources, in the next 12 months.

“Now that we have the committed capacity to fund over $200M per year through the On Deck platform, we can look ahead in 2011, a year in which we plan to make the transition from private to commercial bank sources of capital,” writes Mitch Jacobs, founder and chief executive, in an On Deck blog.

Indeed, Jacobs tells Bank Innovation his company’s intentions never lied with lending, but rather, with solving a massive flaw in small business lending: Banks don’t see the ROI on smaller loans because of the underwriting and servicing legwork required, and therefore, don’t lend the lines of credit. In other words, Main Street small businesses seeking $40,000 loans from banks can’t get access, even with phenomenal credit scores, because banks can’t justify the costs associated with the credit loan package, he explains. [Bank Innovation also shares a similar school of thought and touched on small business lending here.] On Deck, meanwhile, strives to automate the loan process as much as possible and relies on data that goes beyond the owner’s FICO score, like cash flow, to fill a hole in small business lending riddle. Typically, a bank originates a small business loan based on the owner’s credit score, rather than business credit data. The goal is nothing short of making Main Street loans profitable for lenders when they incorporate On Deck’s technology into their systems and getting the small businesses the loans they need.

The fact that the small business lending conundrum exists, however, doesn’t mean finding those banking relationships will be easy.

The main hurdle in establishing bank partnerships, and one which most fintech companies face, deals with addressing the regulatory framework ruling financial institutions. “The rhetoric and the reality is a point of departure,” he says. Still, Jacobs, who has also led two additional VC-backed ventures, believes the time is ripe for fintech companies across the nation.

“The climate crisis spawned green tech. The financial crisis spawned fintech,” says Jacobs. “A lot of fintech is in development. This is the year they will be recognized.”

But just because fintechs are earning more recognition these days, Jacobs points out that the problems within financial services the companies are trying to resolve – including his own – have existed for some time.

“The credit crisis, economic crisis, brought attention to a problem that was always there,” he says.