An Online Lender `Disrupting' Banks? More Like Helping Out
- Lending startup Fundation enters pact with more than 200 banks
- Program aims to reduce `friction' in small-business lending
More than 200 U.S. banks are finding not every financial-technology startup is out to steal their business.
Fundation, an online lender founded 2011, announced a partnership Tuesday with BancAlliance, a network of community banks spanning 40 states. The deal has two parts: Banks get access to a Fundation platform that simplifies underwriting for small-business loans. Fundation, in turn, can offer credit to customers that don’t fit the banks’ borrowing criteria.
The arrangement echoes a deal BancAlliance reached with LendingClub Corp. last year to help community banks provide personal loans to their customers. At the time, that partnership showed Silicon Valley was starting to approach traditional lenders more amicably than some startups’ bank-bashing suggested.
Over the past few years, a growing number of new ventures have muscled into financial services. There are websites now where borrowers can get financing for small businesses, elective medical procedures, consolidation of credit-card and student-loan debts, and even to open a franchise restaurant.
Seeking Partners
Fundation has made a bank-friendly pitch central to its strategy. Last year, the startup struck a deal with Regions Financial Corp. to share technology and offer loans to borrowers that the bank doesn’t lend to.
“We really don’t emphasize, like so many companies in our market do, trying to disintermediate banks,” Fundation Chief Executive Officer Sam Graziano said in a phone interview. “We want to be the leading partner to the banking system.”
Others are pursuing a similar strategy. OnDeck Capital Inc. struck a deal with JPMorgan Chase & Co. late last year to speed up lending to small businesses. The online lender followed up that arrangement weeks later with a referral agreement with Commonwealth Bank of Australia, the continent’s largest lender.
The appeal of the latest Fundation pact is simple, said Brian Graham, CEO of Alliance Partners, the manager for the BancAlliance network. Most community lenders don’t have the technological resources to make certain segments of small-business lending economically viable.
“It costs the bank the same to underwrite a $500,000 loan as it does a $5 million loan,” he said in an interview. “Loans under $250,000, most banks lose money on.”
Setting Terms
Fundation’s main products are fixed-rate installment loans. Under the partnership, loans will be capped at $1 million. Specific terms and interest rates will be left to the partnering banks, Graham said. Whichever institution underwrites the debt keeps the servicing rights.
Partnering with Fundation won’t replace community banks’ normal due-diligence on borrowers, Graham said. But it will remove some of the “friction” in the process.
“This isn’t about automating everything,” Graham said. “In small business, in particular, you can't do $500,000 without talking to a person.”
BancAlliance and Fundation Form Partnership to Bring Small Business Lending Technology Solution to Community Banks
NEW YORK and CHEVY CHASE, Md., March 1, 2016 /PRNewswire/ -- BancAlliance, a network of more than 200 community banks across 40 states, and Fundation, an online small business direct lender, today announced a partnership that advances the small business lending capabilities of community banks and brings greater choice and simplicity to small businesses seeking credit from their local community bank.
The program includes the introduction of a new financial technology platform, developed and operated by BancAlliance and Fundation, allowing small businesses to access an online portal that will guide each small business customer to the products that best meet its unique needs.
The program will benefit community banks that participate by reducing the costs inherent in small business lending and expanding customer access to a competitive set of credit products offered by the community banks themselves and by Fundation. To maximize the choices available to small businesses throughout the country, BancAlliance and Fundation expect to invite to the program additional lenders that address the credit needs of small businesses outside the banks' and Fundation's capabilities.
The program is designed to allow each community bank to preserve a high level of control over customer experience, credit products offered to their customers and utilization of their balance sheet, directly or indirectly through Fundation.
BancAlliance is a collaborative network of community banks that empowers its members to access growth opportunities that might not otherwise be available to them and to serve their customers in new ways. Community bank members typically range from $100 million to $10 billion in assets. In aggregate, BancAlliance's member base would rank as the fourth-largest U.S. bank in branch count and 13th-largest in total assets.
Leslie Andersen, president and CEO of Bank of Bennington in Nebraska and a member of the BancAlliance Board of Directors, stated: "Small businesses need credit to grow and add jobs, and community banks are the best lenders to serve them but have struggled with the costs of building their own systems and processes. This BancAlliance program gives its community bank members access to the best and latest technology, freeing banks like mine to deliver for our customers and help our local economies thrive."
Brian Graham, CEO of Alliance Partners, the manager for the BancAlliance network, stated: "Community banks have historically been the bedrock on which so many small businesses have been built and flourished, and we are proud that this program will help to continue that tradition. Community bankers have frequently told us about the challenges of operating a small business lending operation in a cost-efficient manner, and this program will begin to change that dynamic."
Sam Graziano, CEO of Fundation, added: "Small businesses are so important to the economy and an extremely diverse market. They have demonstrated that they value the relationships they have with their bank, and continue to prefer to access financial products from their bank when possible. This program will dramatically broaden the number of small business customers that can be served through the community bank system, and we are thrilled to be in a position to enable that."
About BancAlliance
The BancAlliance network is a shared lending platform in service to its community bank members. Our mission is to enable our members, the banks that direct our activities, to prudently diversify into high-quality loans in a manner consistent with the highest commercial and regulatory standards—without changing the nature or mission of the traditional community bank. BancAlliance has member banks located throughout the country. Learn more at www.bancalliance.com.
About Alliance Partners
Alliance Partners is an asset-management and advisory firm focused on helping regulated financial institutions and other investors optimize their asset strategies and build more profitable and more balanced loan and investment portfolios. Learn more at www.alliancepartners.com.
About Fundation
Fundation is a leading online lender to businesses nationwide. Fundation partners with a broad array of financial and nonfinancial institutions that serve the small business market in a variety of capacities to bring value-added credit solutions. Fundation builds customized product offerings and delivery methods to meet the needs of each unique partner and the credit needs of its small commercial customers. Visit http://5kb.f76.myftpupload.com for more information.