I wonder if it’s time for a paradigm shift in how we look at small business lending and the role non-bank (e.g. alternative) lenders have to play.
I’m convinced one of the biggest challenges faced by small business owners is finding the capital they need to grow. I think we all agree, it’s a big problem on Main Street when community bankers are struggling to compete with bigger rivals; and those that are surviving are moving upstream to what they believe is potentially more lucrative business.
For example, in 2000 the lion’s share of small business lending took place within the walls of traditional lenders like the local bank or the local branch of one of the national banks. Fast forward 14 years and non-bank lenders are giving Main Street business owners access to more capital (and community banks a real run for the money) every day.
For example, the SBA identifies
Just a month or so ago, OnDeck announced 150 percent growth and over $825 million in loan volume since the company started in 2007. Bloomberg’s Patrick Clark, writing about OnDeck, suggested, “Breslow [OnDeck’s CEO] wouldn’t reveal the company’s 2013 loan volumes, but here’s some rough math. [The press announcement mentioned above] said OnDeck has loaned $825 million since 2007. Last year it said it lent small businesses $350 million through 2012. That would place last year’s loan volume at $475 million.”
I can’t help but wonder if OnDeck and other non-bank alternative lenders should be included in what the SBA is doing to serve Main Street? Yes, I just asked if non-bank lenders like OnDeck should be included as SBA member lenders.
Capital Access Network, now CAN Capital, set a record of $66 million in small business loan volume for the month of May last year; and has provided small and mid-sized businesses access to $3.6 billion in loans since 1998. Those are numbers that eclipse what even the biggest traditional small business lenders like Wells Fargo,
Alternative SBA Lenders?
Just what is the criteria that would make it feasible for an alternative lender to become part of the SBA loan guarantee program? I imagine it would require some level of regulation and/or approval process, but lenders like OnDeck, CAN Capital, and Merchant Cash & Capital, and dozens of others have figured out how to streamline the loan process by taking a different approach to the underwriting process and how they approve potential borrowers.
If you were Maria Contreras-Sweet (current SBA Administrator), what would you do to introduce (and maybe even welcome) alternative lenders to the SBA? Is it time to recognize (and even legitimize) the alternative lending industry (from a government perspective) by allowing alternative lenders to get access to some of the same loan guarantees that traditional SBA lenders receive? And, would this further accelerate the decreasing loan rates that the borrower is paying for these loans?
Is it possible, particularly for the smallest small businesses, that by looking at how we underwrite and process small business loans we can make the process easier for both the borrower and the lender? SmartBiz isn’t an alternative lender and they actually work with Golden Pacific Bank, an SBA lender in California, but they’ve leveraged technology (not unlike what alternative lenders are doing) to streamline the application and approval process on SBA loans under $150,000 to as little as five days. This is a huge boon for many small business borrowers.
Is there a place within the SBA where alternative, non-bank lenders, can fill the gap left by traditional lenders who seem to be moving upstream? And, can we leverage what non-bank lenders, and others like SmartBiz, are doing to streamline the loan application process to make capital more available to Main Street?
Let’s face it, banks aren’t the only place Main Street can go for capital any more. Is there a way the SBA can allow all small business lenders to participate in the SBA?
Don’t get me wrong, I’m a big advocate of community banking and what many small business bankers are doing to help provide capital to the Main Street businesses that create local jobs within their local neighborhoods—but I can’t help but see the challenges facing small business owners who can’t access capital through traditional means.
Regardless of whether or not alternative lenders are welcomed into the SBA, I’m convinced alternative lenders have a big role to play in the future of small business lending—and will continue to take small business loans away from their more traditional brethren.
What are your thoughts? Are you a player (alternative lender, traditional banker, SBA employee, small business owner, small business loan broker, passionate small business champion, etc.) in the small business lending industry? If so, I’d love to hear from you.
