Does Online Mean Impersonal?
Times are changing for community banks, the places small business borrowers traditionally went for a small business loan. An article shared with me this morning by Lendio founder and CEO Brock Blake, might provide some insight. Andy Peters, writing for AmericanBanker.com, suggests that online lenders, who can often approve a small business loan in a day or less, are making it difficult for community banks to compete.
Technology appears to be one reason. “Frankly, community banks just haven’t been able to invest in new technology,” says Andrea Gellert, senior vice president of marketing at On Deck Capital, of New York [On Deck is one of the lenders on the Lendio platform].
Meanwhile, in my opinion, some community banks are simply making excuses. “Community banks still like to truly know their customer, so I would view the strategy as more of an entree to a comprehensive relationship,” said Trey Maust, co-president and chief executive a the $121 million-asset Lewis & Clark Bank in Oregon City, OR.
I think implying that online means impersonal is disingenuous.
What we’re not hearing in this discussion is the fact that only 10 percent of the small business people that go into their local community bank for a small business loan leave with the loan. Dave Seleski, president and chief executive at Stonegate Bank (SGBK), a $1 billion-asset bank in Fort Lauderdale, FL, says, “It’s all based on credit scores and on historical losses.” Some small-business lending opportunities don’t go to community banks because they are unwilling to lend to borrowers with “no business plan, no collateral and their income is not where you want it to be.”
Does that sound like a more “personal” approach?
We work with hundreds of traditional banks (including a lot of community banks and credit unions) along with non-traditional lenders like On Deck. Many of the small business owners that use Lendio do so after being turned down by their local community bank. Many Main Street businesses might not have a 720 credit score or three or four years in business, but they have the cash flow and the market share to make them a good credit risk for many alternative lenders. Taking a deeper dive into some of the other measures of business success seems like taking a more personal approach to me. What’s more, 85 percent of the business owners we see every day get matched to some kind of financing (the choice is theirs as to whether or not they take the loan)—that sounds a far cry better than the 10 percent mentioned earlier.
One small business owner I’ve spoken with recently talked about how frustrated he was after signing a large government contract. He needed some capital to get him poised to meet the contract obligations, but wouldn’t have the cash flow from the contract for somewhere around 45 days. His local bank, very impersonally, said no. He found the short-term financing he needed by working with us and connecting to an online lender.
I think the trend of online lending is good for small business owners. I also know of many community bankers that are looking at how they work with small business borrowers and doing a better job of reaching out to them and writing business loans. As community banks face more competition from online lenders they’ll be compelled to change the current paradigm and become more accommodating to the small business borrowers everyone acknowledges as the backbone of the U.S. economy.
Maybe it’s time to re-think what “personal” banking really means.