The State of Small Business Lending—Business Fuel Podcast #75
Changes in small business lending make it easier for business owners to find a loan
Listen to our interview with Lendio CEO Brock Blake
The world of small business lending is changing. Brock Blake, CEO and founder of Lendio, shares his views of the current state of small business lending and looks into his crystal ball to predict how small business owners will be able to access capital in the coming months.
Information you need, the podcasts you trust, this is the PatrickWiscombe.com podcast network. Bringing you interviews with top business professionals and business financing tips to fuel your American dream. This is the Business Fuel Podcast heard exclusively on Lendio.com. And now, here are your hosts, Ty Kiisel and Patrick Wiscombe.
Sponsorship: This podcast is sponsored by Lendio.com. The online source you need to find the right business financing to grow your company. Check them out for free at Lendio.com to get your business growing right now.
Patrick Wiscombe: This is the world famous Business Fuel Podcast. Good morning, I’m Patrick Wiscombe. Thank you for tuning us in and taking us along wherever and however you’re accessing the podcast today. You can pick up the podcast every Tuesday morning at Lendio.com/blog. Coming up today, we’re going to be talking about the current state of small business lending with the CEO of Lendio, Brock Blake. But first let’s bring in the producer and co-host of the podcast, Ty Kiisel. How are you this morning?
Ty Kiisel: I’m doing really good. We need to be on our best behavior today since the CEO is on with us.
Patrick Wiscombe: That means we’ll only stick to the topic at hand. If anyone knows Brock, he’s a very dynamic person. We don’t need to be on our best behavior.
Ty Kiisel: He’s a good guy. I’m just busting his chops because I can.
Patrick: Let’s say hello. How are you Brock?
Brock Blake: Doing great. You better be on your best behavior. You know me, I’m the stickler around here.
Patrick: Yes. You crack the whip on us. It’s been a while so give us an update, generally speaking, on how Lendio is doing. Then we’ll dive into the current state of small business lending.
Brock Blake: I’ve been traveling all over the U.S. meeting with our partners; banks, other lending institutions, and credit unions. And we’ve also been busy here in the home office trying to build out products and doing everything we can to make it easier for small businesses to get the financing they need. We’ve had a great couple of quarters. We’ve released new products and continue to improve. It’s a great time to be in small business lending.
Patrick: The last time I talked to you, Lendio was in the old building in South Jordan. Now you’re near I-15.
Brock: We’re in a great building and we continue to expand our space and add new people. We’re excited about the momentum that business is bringing to us.
Patrick: You mentioned product a second ago. Let’s talk about those.
Brock: For business owners that are looking for financing, we continue to add lenders to our platform that fill in gaps. Once a month, we look at business owners that may have fallen through the cracks based on certain criteria. They may have not had options based on time in business or revenue, or whatever it may be. So a focus of ours is to analyze that data to be able to say, “What are the different loan options out there that could have helped this business owner had they been on our platform?” We have also done a bunch of research and analysis of different lenders in the U.S. Our team spent about 45 days on the road shadowing loan officers across the United States. We wanted to see what interaction they had with the business owner and identify what tools we could provide to help them improve those interactions. We realized they were using spreadsheets, email, and post-it notes. Those are archaic tools that didn’t provide the best experience for the business owner. The loan officer was not as efficient as they could be. We just launched Lendio Pipeline a couple of months ago. It’s a tool that a loan officer can use to keep track of every document and every application. It makes things more efficient so nothing is falling through the cracks. At the end of the day, we’re trying to help both sides so more businesses get funded. So we’ve got a lot on our plate, but we’re ambitious about our goals to help businesses across the U.S.
Patrick: Refresh our memories as to why you started Lendio in the first place.
Brock: Small business lending, at it’s core, is really a bunch of individuals across the U.S. who have a dream. Whether that dream is to open up a taco stand, landscaping company, or dry cleaner, it’s a desire to open their own business. They want to live the “American dream.” But there’s a challenge with that. Most of these business owners aren’t independently wealthy and are looking for ways to finance the growth of their business. The small business lending market in general has so much pain in the process. The small business owner would go from bank to bank, complete long applications, and get their credit cold. It was a bad experience because they were being declined so often. Because of the recession in 2008, so many of the banks and credit unions really only want to do loans for those who don’t really need loans. It just became increasingly difficult for the owner to get the financing they need. We thought there was a better way to make it a little more efficient. So we set out to find as many different options as possible so that owner could get the financing they need. We’re not perfect and not every owner is going to get the financing they need. But we’re sure motivated to make it easier.
Ty: Since Lendio started a couple of years ago, we’re not the only ones to see the change happen. The whole face of small business lending is changing. Brock has written recently of how the traditional banker is dead and the alternative lender should be included in the SBA. Talk about that and what you see changing in the next 12 months.
Brock: Back in the day, it was very simple because the business owner had a relationship with their banker. When they needed financing, the would talk to their banker about how to make it happen. The good old days are long gone now. If most people are like me, they haven’t been inside their bank branch in years. You do everything over the internet or by mobile phone. The last thing you want to do is go inside the bank branch. The other thing is that the experience of getting a loan is still very painful when you’re going through a bank. They haven’t innovated that much. It still takes 30-45 days to analyze all the information they make you provide. If you’re lucky, they come back to you 60 days later with an approval, but it’s most likely a decline. It’s just a painful experience. Since 2008, entrepreneurs have said, “There’s got to be a better way. There’s got to be an easier way to underwrite.” That’s why a lot of these alternative lenders have popped up. They can get access to your bank records, volume of credit card transactions, and your collateral to make a decision within minutes. So you’ve got this movement in small business lending of all these new lenders that are competing against the banks and credit unions. Bankers are going to have to change their paradigm in the way they look at small business lending. They need to be more sales minded and proactive about reaching out to the business owner. Alternative lenders are likely doing as much loan volume as the traditional lenders. If that’s the case, and we think about incentives from the SBA, the government needs to look at their goals of getting capital to main street. I would propose it’s time for the SBA to take a step back and say, “How can we be most effective in getting capital in the hands of business owners?” That may now include the alternative lender.
Ty: 3 or 4 weeks ago, CNBC put out a list of the top 10 SBA lenders who were working in loans of $150,000 or less. I also looked at a press release that OnDeck put out. One random alternative lender did almost 4 times the loan volume of the top traditional lender. Isn’t it safe to say the alternative lender is very much focused on that $150,000 or less loan amount?
Brock: No question. Very often the small business loan request is for under $50,000. They don’t need a lot of capital to get their idea off the ground. There’s a disconnect between the need and what the bank wants to give. It costs the bank the same to do a $1 million dollar loan as it does a $50,000 loan. For the most part, they’re not focused on doing loans for less than $250,000. But that’s the entire focus of the alternative lender. So the market size of the smaller loans is incredible large. The knock on the alternative lender is that the rates are higher, but they’re also taking a bigger risk. They’re taking on a business owner that’s more risky, maybe doesn’t have a great score, not as much revenue, and not much of a track record.
Ty: A couple of weeks ago we talked to the guys from Smart Biz. I like the idea of the traditional bank and the tech partnership. They claim you can get an SBA loan approved and ready to fund in as little as 5 days. They’ve streamlined the process. Do you think this is a trend we’re going to see more of in the future?
Brock: No question. It’s fun to see people like Smart Biz understand that a 60 day wait for approval is just not going to cut it. I like that they’re thinking outside the box.
Patrick: Isn’t that what you want small business lending to be?
Brock: Absolutely. We’re just trying to make it more efficient. We feel like we’re helping do our part in this process. We’re trying to use technology to connect business owners with the right loan options. And also work with those lenders who are the most progressive in underwriting in a fast and efficient way. It’s fun to see the evolution of the market.
Patrick: Have you been surprised how long it’s taken to change this particular industry into a more efficient industry?
Brock: In some ways yes, and in some ways no. Small business lending is a huge, trillion dollar market. There’s a lot of established players. It’s very fragmented. In a lot of ways, we’ve seen rapid progress and development over the last several years. But in other ways, it’s gone slower that you’d think. It’s hard to answer that question. There’s a lot of fun things happening, but it’s still very old school as well. It’s like a huge cruise ship, it doesn’t turn swiftly. We’re making progress, but we’ve got to be patient as well.
Ty: There are some major things happening in the financial market that say Lendio is right on track with this, right?
Brock: It’s hard to be able to describe if you’re not looking at it every day. There is so much momentum in small business lending. There’s so much momentum in online lending. Lending Club is the darling in the online lending space. They are primarily focused on consumer loans, not business loans. They can get approval in as little as 24 hours, not 4 or 5 days. And they are funding close to $350 million in loans a month. It is definitely becoming an acceptable and efficient market. There’s no question business is following consumer on this.
Ty: What does that mean for small business owners? Is it going to be easier or harder to get a loan 12 months from now?
Brock: No question it will be easier. It already is easier today than it was 12 months ago. Barring some economic crisis, it will be significantly easier for the business owner to get the financing they are looking for.
Ty: If someone is interested in using a lender on our platform, what do they need to do Brock?
Brock: It’s free for the business owner. Go to Lendio.com. Or our phone number is 855-8-LENDIO. We’ve got a team of loan officers here that can help you out. We’ll talk through your situation and see if we can be helpful.
Patrick: Are you still looking for lenders as well?
Patrick: Well that will do it for this edition of The Business Fuel Podcast. Our thanks to Brock Blake, CEO of Lendio. Good to chat with you again.
Brock: Thanks for having me on guys. It’s fun to listen to all these different episodes.
Patrick: So for Brock Blake, Ty Kiisel, Director of Content Marketing, I’m Patrick Wiscombe. Thank you for listening. We will have a fresh episode next Tuesday.
Bringing you interviews with top business professionals and business financing tips to help fuel your American dream. This has been the Business Fuel podcast, with your hosts, Ty Kiisel and Patrick Wiscombe, heard exclusively on Lendio.com