Modern banking started in 1656 when Stockholm’s Banco started printing banknotes. Today we may have credit cards, direct deposits, and online branches, but for the most part, banks and bankers haven’t really changed all that much over the last three hundred or so years—until now.
Thinking Outside the Box
Not too many days ago Oklahoma City-based MidFirst Bank acquired Presidential Financial (one of the country’s largest non-traditional, asset-based lenders), making it possible for them to offer more options to small business borrowers looking for cash to fund working capital or fuel growth. According to Presidential, “As a result of this transaction, Presidential becomes one of the strongest and most versatile lenders in the markets that we serve. This transaction will allow Presidential to offer additional financing products to our clients, as well as the ability to fully service their financing and banking needs over their entire life cycle.”
Although I’m not convinced there’s anything inherently earth-shattering about the merger in and of itself, I do think the perspective of the executives from MidFirst, one of the largest privately owned banks in the country, and their counterparts at Presidential Financial represents an incredible and much-needed paradigm shift within the banking industry.
This is big news because banks and non-traditional lenders approach the marketplace so differently.
Business Owners are Looking for the Best Option (regardless of location)
It wasn’t too many years ago that a business owner looking for a loan didn’t have many options. He or she would visit their local bank, sit across the desk from a loan officer, and cross their fingers. After this interaction, only 10-15 percent of those borrowers would be lucky enough to walk out of the bank with a loan. The others would go from bank to bank and jump through the same hoops—until they were eventually forced to throw in the towel.
It didn’t get any better with the collapse of the economy and the subsequent tightening of credit that followed. The Small Business Administration (SBA) reports a 5.89 million decrease in the number of loans from 2008 through 2011—a drop of roughly $104 billion in capital that was unavailable to small businesses in 2011 that would have been available in 2008. This created a fantastic opportunity for asset-based lenders like Presidential to capture large portions of the market that had been abandoned by traditional small business lenders like banks and credit unions over the last three or four years.
Collectively, small businesses create a lot of jobs. According to the SBA, 2/3 of all new jobs since the 1970s were created by small business. With this in mind, there is a real need for the old-school bankers to change the culture that exists within their institutions so they can encourage small business creation and growth. I also think the days when a banker can contentedly sit behind a desk and waiting for a potential small business loan to drop in their lap is over. Small business owners aren’t married to the local bank anymore. Technology makes it possible to live in Phoenix and bank in Cincinnati.
Thankfully, there are a handful of traditional lenders (like MidFirst) that are catching the wave and embracing the trends.
Will this be an outlier or a new trend?
At Lendio we’ve seen a marked increase in the number of non-traditional lenders entering the market to fill the vacuum left by traditional lenders. Not only do they have capital to lend, they bring a fresh, market-driven approach to how they interact with borrowers. The merger between MidFirst and Presidential bodes well for small businesses all across the country if it portends a shift in the way traditional lenders approach the small business market.
What’s more, there are lenders (including banks and non-traditional lenders) who are aggressively going after business outside their footprint—which means the local banker needs to be on his or her toes or the business owners within their community will go someplace else. At Lendio, we also see more and more business owners accepting the notion that the best financing for them might not be a traditional bank loan. I view the MidFirst-Presidential merger as potentially a great example of how a lender can offer financing for the majority of their small business borrowers by offering alternatives to a traditional term loan.
It'll be interesting to keep our eye on the market to see if this is an outlier or if MidFirst is starting a new trend. In an industry that is not known for innovation, I commend MidFirst and Presidential for thinking outside the box!
Author: Brock Blake is the CEO of Lendio, a platform empowering business owners to find and secure small business loans. You can reach Brock on twitter at @brockblake or at www.lendio.com.
