Is Alternative Lending Suffering From an Identity Crisis?

It’s been a long, windy road for the FinTech industry. Sam Graziano of Fundation explains the industry is on the cusp of yet more distinct pivots.


The growth and evolution of "alternative lending" has been a windy road. Like any so-called "disruptive" industry, the eventual successful business model (or business models) evolves through a series of "pivots" (in entrepreneur-speak). It would appear that we are on the cusp of another major pivot for the industry, or, more likely, a few distinct pivots that will be taken by a few distinct groups of businesses, furthering their evolution toward business models that are scalable, profitable and part of the long-term financial services ecosystem. Perhaps, in so doing, clarifying for the outside world whether these companies are technology-enabled financial services companies or technology companies addressing the financial services industry (true "FinTech" companies).

What’s clear is that the industry continues to suffer from an identity crisis, evidenced by the terms used to describe it. It was initially labeled as "Peer to Peer Lending," at times uses the term "Online Lending," morphed into "Marketplace Lending," and now, at least some are using a term I am proud to have coined, "Digitally Enabled Lending" (or its abbreviated version "Digital Lending"), a term more suitable to the broad array of businesses within the industry. The industry terminology never seems to quite catch up to changes in business models or draw enough clear distinctions between the various business models.

For purposes of this article, let’s use my preferred term, "Digitally Enabled Lenders", (or DELs for short). A DEL is distinctly different than the Alternative Lenders of years ago — the factors, asset-based lenders and equipment financing companies that were the original fabric of the non-bank lending ecosystem. DELs leverage the "Triple As" (aggregation, automation and analytics) to run their lending models. Aggregation, enabled by technology, is the process of a DEL capturing data from third parties in real-time. Automation, enabled by technology, in this context is the process of applying software to running business logic (credit algorithms) or redundant business processes. Analytics, enabled by technology, in this context is the process by which DELs turn that aggregated data into statistical probabilities – probability being the key word. The "Triple As" are the common denominator of the industry, an industry built to underwrite, originate and service small-balance credit to consumers and small businesses more efficiently than the traditional bank models ever have. Perhaps after another credit cycle DELs will prove to have developed better risk models as well.

Undoubtedly this tech-enabled method of lending is and will be a driving force in the evolution of small-balance lending. Yet, the "Triple As" don’t equal triple the profits. As it turns out, customers don’t just show up at your doorstep asking for the "tech-enabled loan." And, more recently, the capital markets are suggesting it might not flood every prospective industry participant with cash forever. Meanwhile, the banks still have two major competitive advantages: 1) their low cost and stable funding, and 2) a structural advantage to the customer through the deposit relationship.

Small-balance lending, technology or not, is a tough business. Few, if any, DELs have delivered the level of profits that the private and public markets will require to justify the valuations they still command. As high profits still elude the DELs, they are starting to pivot, or, at least signal a pivot is in the making. The bank dis-intermediators are talking about bank partnerships, the brand builders are talking about providing platform solutions and the "marketplaces" are moving toward leveraging permanent capital vehicles. None of which is a criticism of any kind (I run a DEL after all!). If only Blockbuster had pivoted faster when Netflix launched their disruptive concept of mailing people their DVDs.

The nature of the pivots differs based on product line. To date, DELs largely exist in four markets, student lending, unsecured consumer lending, nonconforming mortgage lending and small business lending. Some DELs are pursuing new product lines to sustain their growth rates and capture more of the customer’s wallet. Others are pursuing bank partnerships. A select few are intent on becoming software companies (not lending at all), enabling digital lending for the banks and other non tech-enabled lenders. And, lastly, others who have already proven their ability to drive strong unit economics by marketing directly to a consumer (or a business) are intent on becoming a lasting brand within the U.S. financial services ecosystem.

What is rather clear is that the players in the DEL market are choosing to pivot and pursue pathways that will result in profitable and sustainable business models. My wager is that the result will bring clarity to the DEL identity crisis through the creation of multiple new business models and multiple new identities.


TSL graphic


Sam Graziano is the chief executive officer of Fundation, a New York City-based small business direct lender and solutions provider that utilizes a sophisticated software platform to streamline the lending process. Graziano is a highly experienced financial services professional and entrepreneur. Graziano graduated from Bucknell University with honors with a degree in Computer Science & Engineering.

Online Lenders Breed Competition, New Loans for Banks

Birmingham’s banking community is finding that the growing financial technology sector is providing both challenges and opportunities.

Nowhere is that more evident than the growing marketplace lending arena.

Marketplace lenders, which provide an online, tech-driven way to connect borrowers and lenders, are creating new business and new competition for Birmingham’s traditional banks.

And some Birmingham financial veterans are carving out their own niche in the industry, which an American Banker study showed has increased by 700 percent in the past four years.

Simply put, marketplace lenders are companies that create an online option for consumers to find loans for everything from home purchases and small business loans to loans for purchases at specific companies.

Some are direct lenders that actually hold the loans, while others are simply platforms that partner with financial institutions to originate loans.

With major players like Avant, Kabbage and Lending Tree, it’s already a huge industry. And Birmingham banks and financial pros are trying to carve out their own place in the business.

One new player is based in Birmingham.

Stairway Lending, started by Birmingham financial industry veterans Cary Cooper, Josh Dennis and John Romero, was launched six months ago. The company plans to initially focus on student, health care and small business loans.

Company leaders say they are carving out a niche with loans that are too small for many banks.

“It takes more money for a bank to process smaller loans than they would make on the interest of that loan,” Cooper said. “So using us, the companies not only are not losing money, but actually come out on top.”

Stairway uses its own in-house technology and cobrands its websites with businesses that use its services.

The ease of finding a loan - a decision comes instantly, and often the money is available that day - is one of marketplace lending’s strong selling points. And big banks are getting on board.

Regions Bank announced last October a partnership with Fundation, an online lending platform Regions executives say can help small businesses find loans.

“We asked our customers early in 2015 what were some of the products they wanted to see from Regions, and a large percentage of our business customers expressed an interest in working with us to use an online lending experience,” said Joe DiNicolantonio, head of Regions Business Banking. “So, we started looking at ways to fill that need.”

They partnered with Fundation after researching several other platforms.

DiNicolantonio said the use of Fundation can combine the face-to-face personal banking experience that small business owners want, with the ease and convenience of the online lending process.

“The customer is walked through the whole process, so it is not just some dark space they are entering when applying for and receiving the loans. There is still a customer experience. Someone talks to them and sees them through the process.”

Using an MPL, Regions can still retain customers while offering them the opportunity to access funds through a fast and convenient outlet.

Regions also announced earlier this year that it would team up with Avant, another marketplace lender, but Regions officials say that partnership will not begin until later in the year.

Stephen Yoder, assistant professor at the UAB Collat School of Business and of counsel at Balch & Bingham, said banks teaming up with marketplace lenders and other non-bank financial service providers is a logical reaction to what is called “disintermediation” in banking.

“Disintermediation is a fancy term for the lessening of the role of banks in our financial system, and its pace has been quickening dramatically in recent years,” Yoder said.

“Crowdfunding sites like Kickstarter and nonbank lenders like the Lending Club are other examples of non-regulated lenders moving into what used to be the territory of banks.”

Yoder said there are many causes of disintermediation. One being technology - which makes it much easier for non-banks to reach consumers and other traditional banking customers directly. Another is the Dodd-Frank banking legislation passed in 2010 that has put pressure on banks to raise more capital and to spend more on compliance, probably at the expense of making as many loans as they would like to make.

“Avant is not itself a lender, however,” Yoder said. “Its bank partners are still making the loans that are started on the Avant website.”

Whatever the future holds for these lenders, the industry is taking notice. Foundation Capital predicted last week that marketplace lending is expected to grow to $1 trillion by 2025.

Best Alternative Small Business Loans 2016

By Chad Brooks, Business News Daily Senior Writer May 17, 2016

To help you find the right business loan, we researched and analyzed dozens of alternative lenders. Here is a roundup of the lenders we think are best and an explanation of how we chose them.

Best Working-Capital Loans: Fundation

Fundation offers conventional fixed-rate loans of between $20,000 and $500,000, with annual rates ranging from 7.99 to 29.99 percent. Online applications can be filled out in 10 minutes, with final approval taking place within 24 hours. To qualify, you must have been in business for at least two years and have at least three employees, annual revenue of at least $100,000 and good personal credit. Fundation provides excellent customer service over the phone and via live chat. Go here for our full review of Fundation.

Best Lines of Credit: Kabbage

Kabbage offers small businesses lines of credit of between $2,000 and $100,000. Each time you draw against your line of credit, you have six or 12 months to pay that money off. Instead of paying interest, however, you pay fees of between 1 and 12 percent each month. To apply, fill out an online application and link the system to either your business bank account or an online service you are already using, such as QuickBooks. Kabbage's platform automatically reviews the data on those sites to determine if you meet the company's standards for a loan. The process typically takes just minutes to complete. Once approved, you have instant access to your loan. Go here for our full review of Kabbage.

Best Startup Loans: Accion

Accion is a nonprofit microlender that specializes in small business loans. It offers loans specifically for startups that have been open for less than six months. Accion's loan amounts and minimum requirements vary by state. Among the more common requirements are a minimum credit score of 575, sufficient cash flow and proof of income. Maximum loan amounts range from $10,000 to $100,000. Applications can be filled out online, with approval usually taking place within one month. Accion's loans, most of which have annual percentage rates starting at 10.99 percent, are repaid on a monthly basis over the length of the loan. Go here for our full review of Accion.

Best Merchant Cash Advances: RapidAdvance

RapidAdvance offers merchant cash advances of between 50 and 250 percent of your monthly credit card volume. Loans are repaid by giving RapidAdvance a fixed percentage of future card receipts until the loan is paid off. To qualify, you need to have been in business for at least three months, have at least $2,500 in monthly credit card receivables and have a physical location for your business. You can apply for the advance online or over the phone. The approval process can be completed in 24 hours, with funds available within three days. Go here for our full review of RapidAdvance.

Best Bad Credit Loans: OnDeck

OnDeck offers fixed-rate loans of between $5,000 and $250,000. To qualify, you need a minimum credit score of 500 and an annual revenue of at least $100,000, and must have been in business for at least one year. Loans have lengths ranging from three to 24 months and are paid back on a daily or weekly basis. You can apply for a loan online or over the phone. Approval can be completed in just a few minutes, with funds deposited into your account within 24 hours. Go here for our full review of OnDeck.

Best Equipment Loans: Crest Capital

Crest Capital offers equipment financing of up to $1,000,000. Financial documents aren't needed for financing of less than $250,000. The lender has a wide range of loan and lease terms, including fixed-rate loans, $1 purchase agreements, 10 percent purchase options, fair-market-value leases, guaranteed purchase agreements and operating leases. To qualify, you must have been in business at least two years and have a minimum credit score of 650. The approval process can be completed in as fast as 4 hours. Go here for our full review of Crest Capital.

Our Methodology

To determine the best alternative lenders, we started with a pool that included all of the lenders on the comprehensive list below. After some preliminary investigation, including a look at other best-pick lists and initial research into each lender, we interviewed small business owners to discover new lenders to add to our list. We also eliminated peer-to-peer lenders and online sites that match businesses with lenders, because these lenders didn't fit into this year's best-pick categories.

Ultimately, we settled on 28 alternative lenders to research as best picks: Accion, American Business Credit Services, American Capital Group, American Express, Amerifund, Ascentium Capital, Balboa Capital, BFS Capital, CAN Capital, Crest Capital, Dealstruck, Direct Capital, Fora Financial, ForwardLine, Fundation, Kabbage, Kalamata Capital, Keystone Leasing, Merchant Advisors, OCM Financial, OnDeck, PayPal, RapidAdvance, Rapid Capital Funding, Shield Funding, SnapCap and Square. (See below for the full list of alternative lenders.)

Next, we researched each lender by investigating the types of loans it offered, the amount of money that could be borrowed and for how long, the application and approval process, and repayment procedures. We also considered any general term-rates that were listed on these lenders' websites. After narrowing the list to 18 final contenders, we contacted each lender's customer-service department by phone, and live chat if possible, and posed as business owners in order to gauge the type of support each company offered.

In all, we analyzed each lender based on the following factors:

  • Application and approval process
  • What it takes to qualify
  • How long it takes to get a loan
  • Loan amounts
  • Loan terms
  • Repayment process
  • Customer service
  • Better Business Bureau ratings and complaints
  • Online user reviews

It's important to note that our best picks were not selected based on the lender most likely to approve your business for a loan. Each lender evaluates businesses differently, and each business has a different financial makeup. Considering these factors, it would be impossible for us to try to determine any business's likelihood of securing a loan with any of these lenders. In addition, our review process did not fully examine specific loan interest rates. These are determined individually for each business based on the amount of money being borrowed, the loan terms and the business's financial makeup. We did, however, consider any average rates that were provided.

Frenemies In the Marketplace

Are marketplace lenders irritant? Foe? Or ally? Yes—and don’t ignore them

Written by Melanie Scarborough

Marketplace lending is like a financial version of Instead of connecting people looking for love, however, it links people looking for money with those willing to lend it—quickly. The process is quite simple. And that, arguably, is the most important point for traditional lenders.

With marketplace lending, someone seeking a loan for personal or business purposes goes to the website of an online lender, such as Fundation, Kabbage, or OnDeck, and applies for credit. An automated decision is made instantaneously, and, if approved, the customer is assigned a risk category that determines the interest rate for the loan, which is then funded by an online investor. The borrower gets access to capital quickly—albeit expensively in many cases—and the lender, who pays a fee to the matchmaker, typically reaps a return rate between 5% and 12%.

Originally dubbed peer-to-peer (P2P) lending because transactions were between individuals, the process is more aptly referred to as marketplace lending now that institutional investors supply most of the capital.

In the United States, marketplace loan origination doubled every year from 2010 to 2014, when it reached $12 billion. For the first half of 2015, loan volume exceeded $16 billion. Growth is so rapid that PricewaterhouseCoopers expects marketplace lending loan volume to be $150 billion within the next ten years.

Not a “little niche thing”

Bankers who don’t see that as a threat may be missing the big picture, says Brad Smith, managing director of technology solutions for Cornerstone Advisors.

“Community banks, more so than large banks, have been slow to react because they don’t see their niche coming under fire,” Smith explains. “They’re typically making commercial real estate and agricultural loans, and, for the moment, those aren’t being sold on online marketplaces—at least not in significant measures. But we’re not that far away from those folks figuring out how to do more specialized lending online, and if we wait for that to happen, it may be too late to respond.”

Smith points to the success Quicken had capturing the online mortgage origination business, to the extent that it is now one of the top three mortgage lenders in virtually every market.

“More people now get their mortgages from online lenders than from traditional banks,” says Smith.

Marketplace lenders offering loans to small businesses could have the same impact, especially because of their speed.

Imagine being a pizzeria owner who suddenly needs $15,000 to replace a broken oven. Are you going to borrow from a lender who is one mouse click away, or are you going wait for a bank to let you know?

“Online lenders are promoting a frictionless process—all they need is a revenue number and a FICO score,” Smith says. “Meanwhile, banks are still asking to see tax returns.”

Some banks have adopted automated decision-making for business loans of less than $250,000, he says, but not all have. And as long as their sluggish process has to compete with online operations that make decisions instantaneously, it’s naïve of bankers to dismiss marketplace lending “as a little niche thing we don’t have to worry about,” says Smith.

Should you be worried?

That approach is reasonable only if your bank’s niche is one others don’t worry about, says Sam Graziano, CEO of Fundation, which makes online loans exclusively to small businesses.

If small business lending isn’t a core product for your bank, then his company poses no threat.

“Silicon Valley Bank—they specialize in venture capital,” says Graziano. “Is traditional, small business lending important to their strategy? Not at all. If small business is a core customer, banks should have their eye on marketplace lending.”

Graziano also doesn’t believe that online lending ever will replace bricks and mortar, citing statistics showing that a large percentage of millennials have gone into a bank recently. [For more on this, read “Who’s using bank apps? And why and how?,” which discusses use of branches.]

“Some transactions—those once-in-a-lifetimes—are emotional decisions, and customers want to be able to speak to someone,” he says. “Branches are not going to go away completely. The type of services they have there and the way those are transacted might change, but there will always be people there who can provide support because people will always want face-to-face.”

Should you just join them?

Yet the concerns of bankers who view marketplace lenders as serious competitors are well founded, according to Brian Graham, CEO of Alliance Partners, the umbrella of the BancAlliance consortium.

“Some of these marketplace lenders started out with a goal of doing to community banks what Amazon did to the local bookstore,” he says. “Others have set as their strategic goal to capture and own the customer and to cross-sell every possible product. If I were a banker, I would be concerned.”

Yet those fears are eclipsed by what Graham says are the tremendous benefits available to small banks through partnerships with marketplace lenders.

“If you look at the community banks and compare their balance sheets 30 years ago to today, there are large swaths of traditional products and services they’ve lost,” Graham observes. “Consumer lending went from 85% held by community banks to 6% or 7% today, and that’s the same dynamic with credit card loans, auto loans—anywhere where technology and platforms and scale became important.”

The concept behind the BancAlliance network, he explains, is to deliver the scale economy that each community bank lacks individually.

By partnering with Fundation for small business loans, and Lending Club for consumer loans, BancAlliance provides its 200 member banks the means to compete for loans big banks have had a lock on for decades, according to Graham. Through those partnerships, he adds, members can have, almost overnight, a digital loan platform.

“They typically partner with us because of our products,” Fundation’s Graziano says. “We offer plain vanilla products structured just like bank loans, but we’re willing to originate them with more customers than the bank can.” Fundation inspires confidence, in part, he points out, because it has an experienced group of data analysts, unlike many of its competitors, and strong financial backing.

The same factors also appeal to big regionals. Regions Bank, for one, decided to partner with Fundation to improve its small business lending.

“They weren’t capturing all the market share they could because a lot of customers prefer to do their finances online,” Graziano says. Working with Fundation, Regions can provide small business loans “through a cost-efficient venue and still serve their customers,” he says.

At Fifth Third Bancorp, Michael Crawford, vice-president, senior manager, Strategic Planning Group, says he is seeing, generally, “three different types of partnerships: banks acting as institutional investors, offering capital to marketplace lenders; banks acting as lead generators for marketplace lenders; and banks licensing underlying technology developed by marketplace lenders.”

WSFS Bank, a $5.2 billion-asset institution based in Wilmington, Del., formed a partnership with marketplace lender LendKey a couple years ago to fill a niche outside the bank’s core products: tuition funding and the refinancing of private student debt.

“We were interested in partnering because we didn’t really have a student loan program, and they have a very good one, as well as a good delivery method to get to borrowers,” says Lisa Brubaker, senior vice-president and director of retail strategy. “It helped fill our product gap.”

The first year was rather slow, says Brubaker, but last year brought “a lot of good, solid growth,” and this year, the bank is building on that—weighing whether to expand the program into adjacent states, and considering whether to grow beyond private debt service into refinancing federal student loans.

The partnership allows the bank to enjoy the advantages of digitized efficiency while retaining control of its own criteria, Brubaker explains. If an applicant searching LendKey for a tuition loan has the right parameters of residence and school location, WSFS Bank will appear on his list of potential lenders.

“From that point, it’s our credit criteria and our pricing, so we feel comfortable because we’ve established those criteria and have the final say,” Brubaker says.

By performing the initial credit review in much less time than the bank would need, LendKey helps WSFS make decisions more quickly than it could otherwise.

“Our view is to take the best-of-breed from marketplace lenders to deliver to our customers without losing that personal touch that we value,” Brubaker says.

People expect fast

Dan O’Malley was hired two years ago by Boston-based Eastern Bank, the nation’s largest mutual bank with $9.6 billion in assets, to head its Eastern Labs division and create for the bank its own online lending platform.

“There is a void left by banks that alternative lenders are taking advantage of,” says O’Malley. “They provide fast service—something customers have gotten used to from other retailers and service providers, but not always from their banks.”

Eastern Bank’s online lending platform—Express Business Loans—officially debuted in March and allows the bank’s existing business customers to receive approval on loans up to $100,000 in as little as five minutes.

For new customers, on whom the bank has to collect data, the process may take as long as 20 minutes. “Customers are clearly responding positively to marketplace lenders and the few banks that have rapid-loan programs,” O’Malley notes, “so it just makes sense for more banks to provide a service that their customers are clamoring for.”

The response to Eastern’s express loans has been phenomenal, according to O’Malley, who wondered two years ago, when they began building the platform, how much demand there would be from customers.

The answer became clear very quickly.

“During our initial pilot, we saw a tripling of the loan volume we had been doing in the test branches,” he says. “We thought this might have just been an anomaly, but in test after test, we saw an incredible response from our small business customers. Now that the product is available to all our customers, this continues to be the case. Customers do value a fast, easy loan process, and we figured out a way to deliver it while keeping the same strong credit policy.” [Read more about how fintech and compliance interact at Eastern in “Compliance management meets fintech”]

Regulators will regulate

Banks may be happy, customers may be pleased, but regulators still have to be satisfied.

When the Consumer Financial Protection Bureau announced in March that it would begin accepting complaints about loans filed with marketplace lenders, many interpreted that as a warning that the agency has online lenders in its sights.

In another event some viewed as ominous, the Supreme Court last month asked the Obama administration to weigh in on Madden v. Midland Funding, which, if upheld, could force online lenders to comply with state-by-state interest rate caps. [For more about the Madden case, see “Online lending on the line?”]

Yet neither bankers nor marketplace lenders say their partnerships create any undue regulatory burden. Brubaker of WSFS Bank says she expects regulators to have questions about the bank’s collaboration with LendKey, as they would about any third-party arrangement, but because WSFS Bank makes the final underwriting decision about those loans, she doesn’t anticipate any concerns.

According to O’Malley, the biggest potential hazard is partnering with a technology company that wasn’t designed to work with banks and doesn’t understand the level of compliance, audit, and regulatory rigor.

Graziano, for one, does understand and built those factors into Fundation’s operation.

“When you decide to become an integrated partner with the banking system, you invite many of the things that come along with being a regulated institution,” he says. For banks, working with an online lender imposes no more regulatory burden than working with any other third party, he says—it’s simply vendor management.

Hot, but never been tested

Questions about the quality of online loans have been raised as well, especially since most of the companies are so new that they haven’t lived through a down credit cycle. But there, too, both bankers and marketplace lenders seem to feel confident in their products.

“The loans that our banks are making through these partnerships are loans that any bank would love to have—high-yielding loans to very creditworthy borrowers,” Graham says about Banc-Alliance. “The average FICO score is roughly 720 to 730; credit quality has been very strong.”

Fifth Third’s Crawford cautions, though, that “there’s still a lot of uncertainty in the space, particularly as it relates to customer acquisition cost, regulation, and performance through multiple credit cycles.” Among the best practices he has observed is “banks beginning partnerships through small purchases of assets, enabling their treasury and credit risk teams to evaluate this new asset class.”

The one thing that is not uncertain is that customers like the efficiency of marketplace lending.

“It’s very customer-friendly and closing is really fast,” says Cornerstone Advisor’s Smith. That’s especially appealing to small business owners, whose main commodity is time. “If a business owner can get a capital line in eight minutes, that’s in less time than he can drive to a branch.”

The number that banks ought to be tracking and focusing on is their loan application turnaround time, he says, because customers are telling them it’s too long. The only way for many banks to improve that time is to partner with a marketplace lender, Smith believes. [Smith recently spoke with Banking Exchange about many banks’ reluctance to step into online credit applications.]

“There are still a lot of community banks wanting to dig in their heels, but the market is forcing them to go that way,” says Smith. “The typical community banker hears Kabbage or OnDeck and tunes out, but can his bank approve a loan in three minutes?”

This article debuted in the April-May 2016 Banking Exchange magazine.

Bigger Bang In Small Biz

Partnership will make small-business loans more efficient for community banks

More than 200 small banks across the country will be able to offer online loans to their small-business customers as part of a new partnership.

Under the deal, community banks that are part of the BancAlliance consortium can refer customers who may not be the right fit for traditional bank financing to a website built with the online lender Fundation.

Ultimately, the loan may be funded either by New York-based Fundation or the partner bank. That determination will be made based on various factors, including the business owner's needs and creditworthiness.

For participating small banks, the idea is that improved efficiency will allow them to profit from smaller-dollar business loans that currently do not make economic sense.

"This program will dramatically broaden the number of small business customers that can be served through the community bank system," Fundation Chief Executive Sam Graziano said in a press release.

Meanwhile, Fundation is expected to lend to many applicants who do not qualify for loans from participating banks. In those instances, the banks will get paid a referral fee.

The deal bears similarities to a consumer lending partnership that BancAlliance and Lending Club announced in February 2015. Under that arrangement, some loans are funded by the participating banks, and others are financed by investors on the Lending Club platform.

Loans made through the Fundation partnership will be for $1 million or less, and they will not be principally secured by a piece of equipment or other hard collateral.

But beyond those broad parameters, it will be up to the participating banks to determine which products and terms they want to offer. "Each bank gets to customize what it wants to provide to its customers," said Brian Graham, the CEO of Alliance Partners, which manages the BancAlliance network.

Over time, additional lenders are expected to join the online portal. Those companies could include nonprofit lenders that specialize in microloans to newly formed businesses and firms that make loans backed by the Small Business Administration, according to Graham.

Fundation currently offers business loans between $20,000 and $500,000. The firm's loans have terms of one to four years, and they carry annual percentage rates of between 7.99% and 29.99%. Unlike some other online lenders, Fundation's loans do not have prepayment penalties.

Fundation, which was founded in November 2011, has made partnering with banks a key part of its strategy. In October, it announced a partnership to make cobranded business loans with Regions Financial.

How To Get A Small Business Loan (Webinar)

Have you reached an exciting point of growth in your business, or are you just ready for more flexibility with your cash flow? You may be ready for a small business loan. Business loans can be powerful tools in allowing you to realize your earning potential. In this webinar, Fundation's Kipp Fawcett will explain where to start, what to expect, and how to confidently evaluate the best solution for you and your business. Kipp will cover:

• Common reasons for business loans
• Types of business loans and where to get them
• What to prepare when you’re ready to approach a lender
• How to evaluate a loan offer

The Transformation of Lending: Banks Partnering with Online Lenders


Learn how the world of lending is being transformed by partnerships between banks and marketplace lending platforms. Discover how these platforms are using technology and big data to expand their underwriting capabilities. This webinar will be valuable for commercial and regional banking executives, bank analysts and emerging platforms.

Presenters: Sam Graziano, Co-Founder & CEO, Fundation Brian Graham, CEO, Alliance-Partners Ann Armstrong, Advisory Principal, KPMG

Step by Step: Fundation Business Loan Application in Real Time

Editor’s note: NerdWallet’s Step by Step series gives small-business owners a behind-the-scenes look at the loan application processes of various online lenders. We show you what you can expect screen by screen as you submit your application.

Even if you’ve turned your business into a success, you may be looking for a way to scale your company, refinance debt or increase your working capital. Fundation, geared toward established businesses, is a mid-prime lender that offers term loans of $20,000 to $500,000 to businesses that have been around for two or more years.

Fundation offers one- to two-year term loans for short-term needs such as payroll, and two- to four-year term loans for more complex undertakings, including renovations. Unlike other online lenders, Fundation also requires you to have at least three employees to apply.

Our Fundation review breaks down the pros and cons of the online lender; here we get into the nitty-gritty of the application itself.

Fundation term loans at a glance

Cost of funding: 8% to 30% APR
Approval time: Can be approved same day, but average is 3-5 days
Loan amount: $20,000 to $500,000
Loan term: 1 to 4 years
Minimum qualifications:

  • Credit score:600
  • Time in business: 2 years
  • Annual revenue: $100,000

Typical Fundation borrower:

  • Credit score: 680-700
  • Time in business: 5-10 years
  • Revenue: $250,000-$750,000

Fundation loan application: Summary

Time: Online application can be completed within an hour, though you may need additional days to complete necessary underwriting calls.*
Phone calls from lender: Two*

Documents needed: Bank statements, with the potential for additional documents*

*Exceptions, details spelled out below.

1. Enter basic information

To get started, you’ll enter basic information about you and your business including:

  • Email address
  • Business name
  • Business ZIP code
  • Use of proceeds
  • Age of business
  • Annual business sales
  • Annual profit before tax

Photo 1

2. Select your industry

Will Ogden, a member of the strategic partnership group at Fundation, notes that drop-down boxes typically used in online business loan applications often force borrowers into very broad buckets, even though industry specifics, such as running a full-service restaurant versus a limited-service restaurant, can affect an application.

Instead, Fundation directs users through a series of questions to help narrow down the type of industry in which they work. “Because it’s more specific,” Ogden says, “it allows us to provide some direct feedback based on industry data and statistics very early in the application process.”

NW Screenshot 2

NW Screenshot 3

3. Review business analysis

Based on the information you provided in steps 1 and 2, you’ll now be presented with a basic business analysis, an interactive part of the application that lets you see upfront how your company may be valued and any potential risks that may affect your funding.

If you’re the owner of a high-risk business and your company isn’t profitable, the program will tell you upfront that Fundation may not be the best fit, Ogden says. This analysis helps set expectations for borrowers so they understand why they may or may not qualify for a loan.

Before you can access your business analysis, you’ll be asked to agree to the Fundation “honor code” by confirming that the information you will provide is accurate and honest.

NW Screenshot 4

This page also provides detailed information about the type of business you run. Historical data from the Small Business Administration show your industry’s default rate compared with other industries, which provides more context on why your business may be considered a high risk.

NW Screenshot 5

4. Explain your loan request

If you decide a loan is the right move for you and your business, you’ll next be asked to tell Fundation a little more about your request. This page includes basic questions such as the amount of the loan and your desired term length, as well as information about how much and what type of debt you have.

Even though it’s not required, you have the option of writing a little bit about your company, the loan request, and how you’ll use the money. Though you’ll likely provide the same information during conversations with your customer relationship manager (more on that later), Ogden says it’s helpful to provide that information here so Fundation has more details early in the process.

NW Screenshot 6

5. Provide business and personal financial details

Next, you’ll be prompted to provide more details about your business, including its address, contact information, business type and tax ID.

At the bottom of the page, you’ll include details about the size and financial profile of your company. By including the number of employees, their benefits, and how many customers you serve, you can provide a big-picture view of your company.

On the next page, you’ll be asked to enter some more specific personal financial data, including your liquidity and household income. At this point, you’ll also agree to a credit check, which will show up as a hard inquiry on your credit report.

NW Screenshot 7

Note: Fundation declined to share the final pages of the application process, saying they are proprietary.

6. Review Fundation feedback

After your information is entered, you’ll wait less than a minute as the program collects data from multiple sources, including credit bureaus. Once the process is complete, Fundation will provide you with feedback analyzing your personal and business credit.

Similar to the industry analysis provided earlier in the application process, you’ll be able to view data and risk ratings based on your personal credit history and public records history, as well as business payments, business credit and business public records history.

Again, access to this information helps borrowers understand how Fundation is analyzing their data and how it may affect the type of funding for which they qualify.

7. Review your automated offers and submit documents

At this point, you’ll be presented with a variety of options with varying term lengths and interest rates. You’ll also start submitting your closing documents.

According to Fundation, loan applications for less than $50,000 typically require you to submit only three months’ worth of bank statements, which can be uploaded securely to your dashboard — a personal landing page for each borrower — or submitted via secure connection to your bank account. For loans up to $100,000 that were started with Regions Bank (with whom Fundation partnered in the fall of 2015), you’ll likely still need to submit only bank statements.

If you’re applying for more than $50,000 (or are a Regions customer requesting more than $100,000), you’ll have to upload additional documents including at least your last-year tax return, three months of bank statements, your company’s financials, and your company’s debt schedule. These documents also can be uploaded to your dashboard or accessed by connecting bookkeeping programs such as QuickBooks or Xero to your account.

8. Chat with a customer relationship manager

Phone call from lenderThe borrower dashboard also lists the name and direct contact information for a customer relationship manager who will be your point of contact throughout the rest of the application process. That person will call you either the day you submit your application or the following business day, giving you a chance to review the details of your request.

At this point, your Fundation contact will determine whether you need to schedule a call with an underwriter. Fundation estimates about 60% of borrowers are subject to that call, especially if applying for a large sum or if a red flag comes up during the application process (such as a problem regarding credit). Your contact can help you identify red flags in your application and prepare for your call with the underwriter.

Phone call from lenderDuring the underwriting call, you’ll be able to discuss your application and clarify outstanding issues such as missed payments or financial mishaps.

9. Time to funding

a Fundation business loan: How much time?Time: One to three days after receiving your offer

Because Fundation is a direct lender, you can receive financing within days, granted your request is straightforward and requires just a bank statement. But Ogden notes that the time it takes to receive your funding typically depends on how quickly you can upload the documents and make yourself available for the underwriting call — so if you’re very motivated, you may get funding within a day; if you’re less proactive, the process could extend days or weeks.

To help expedite the process, he recommends you have a good handle on how your business has performed over the past 12 months and be prepared to answer underwriting questions about any anomalies in your finances.

To apply

If you’re interested in a term loan from Fundation, you can apply on its secure website.

Find and compare small-business loans

To compare Fundation with other lenders, NerdWallet has created a comparison tool of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.

Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @jackie_zm

To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Fundation and BancAlliance Help Community Banks Improve SMB Lending Capacity

Online small business lender Fundation has partnered with community bank consortium BancAlliance to improve community banks’ small business lending ability.

BancAlliance is a network of more than 200 community banks in 40 states. Their combined assets would make them the country’s fourth largest bank by total locations and thirteenth largest by total assets.

The initiative includes the launch of a fin-tech platform developed by the two companies which allows small businesses in need of funding to peruse different loan products.

Participating community banks see lower lending and customer service costs as they provide more financing options for their clients, the companies said. New lenders have been invited to the platform in order to provide borrowers with additional choice.

BancAlliance board member and Bank of Bennington CEO Leslie Andersen said community banks are well-positioned to maximize the benefits of this new platform.

“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.”

Fundation CEO Sam Graziano said community banks will see dramatically increased service capacity.

“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.”

Fundation Wins Silver Stevie® Award For Sales & Customer Service

LAS VEGAS, NEVADA – March 5, 2016 – Fundation was presented with a Silver Stevie® Award in the Sales or Customer Service Solutions Technology Partner of the Year category in the 10th Annual Stevie Awards for Sales & Customer Service last night.

The Stevie Awards for Sales & Customer Service are the world’s top sales awards, business development awards, contact center awards, and customer service awards. The Stevie Awards organizes several of the world’s leading business awards shows including the prestigious American Business Awards and International Business Awards.

The awards were presented to honorees during a gala banquet on Friday, March 4 at the Paris Hotel in Las Vegas. More than 500 executives from the U.S.A. and several other nations attended.

More than 2,100 nominations from organizations of all sizes and in virtually every industry were evaluated in this year’s competition, an increase of 11% over 2015. Finalists were determined by the average scores of 115 professionals worldwide, acting as preliminary judges. Entries were considered in 59 categories for customer service and contact center achievements, including Contact Center of the Year, Award for Innovation in Customer Service, and Consulting Practice of the Year; more than 50 categories for sales and business development achievements, ranging from Senior Sales Executive of the Year to Business Development Achievement of the Year; and categories to recognize new products and services and solution providers.

More than 60 members of several specialized judging committees determined the Gold, Silver and Bronze Stevie Award placements from among the finalists during final judging earlier this month.

“Entries to the Stevie Awards for Sales & Customer Service continue to grow every year, further validating the essential roles that business development, customer service, and sales play in business success,” said Michael Gallagher, president and founder of the Stevie Awards. “The widespread support of this program made the 2016 competition that much more intense among finalists. The judges were deeply impressed by the winners’ accomplishments, and we congratulate all of the winners on their commitment to excellence and innovation.”

Details about the Stevie Awards for Sales & Customer Service and the list of Stevie winners in all categories are available at

About Fundation

Fundation combines the benefits of a bank loan with the ease and efficiency of an online lender. We offer conventional loans with competitive rates to businesses with varying credit profiles. Our technology allows us to deliver capital in 2 business days or less, through a streamlined electronic process. Fundation is a direct lender: we originate loans with our own capital and keep loans we originate on our balance sheet. Because we commit our own money to fund your business loan, our interests are aligned with yours. We are successful when your business succeeds and you are able to repay your loan back to us. That means we will partner with you from the initial application process throughout the life of your loan. As your long-term partner, we offer the highest level of personalized service and best-in-class lending products, which is why our customers come back to us when they need advice or additional capital.

About the Stevie Awards

The Stevie Awards are conferred in six programs: The American Business Awards, the German Stevie Awards, The International Business Awards, the Stevie Awards for Women in Business, the Stevie Awards for Sales & Customer Service, and the Asia-Pacific Stevie Awards. A seventh program, the Stevie Awards for Great Employers, will debut in April 2016. Honoring organizations of all types and sizes and the people behind them, the Stevies recognize outstanding performances in the workplace worldwide. Learn more about the Stevie Awards at, and follow the Stevie Awards on Twitter @TheStevieAwards.
Sponsors of the 10th Annual Stevie Awards for Sales & Customer Service include ValueSelling Associates.