Citizens Bank to Add Digital Lending Capability for Small Business Customers
Collaboration with Fundation will expedite and expand small business loan approvals
PROVIDENCE, RI – Citizens Bank today announced that it will offer digital lending capabilities to small business customers through a collaboration with Fundation Group LLC, a leading digitally-enabled lender and credit solutions provider to regional and community banks. This continues Citizens’ strategy of leveraging innovative digital technologies that create better end-to-end customer experiences. The service is expected to be available in mid-2017.
The added capability will enable small businesses to apply for loans and lines of credit through a simple online application at citizensbank.com. In most cases approval is provided within minutes, and loans are funded in as little as three business days. Additionally, Fundation will offer credit to some customers that do not meet Citizens’ credit guidelines, helping the bank to serve more of its small business customers’ credit needs.
“We know that time is valuable for our business banking customers. This simple digital application process will be quicker and more efficient for customers making smaller requests for credit, enabling them to get back to running their businesses sooner,” said Chris Ward, head of business banking for Citizens Bank. “We believe that our new, automated lending platform will complement the tailored, advice-based services available through relationship managers and bankers to our customers who need larger loans or have more complex needs such as cash management.”
Sam Graziano, CEO of Fundation, added, “At Fundation, our mission is to enable our strategic partners to serve their small business customers more efficiently and more broadly. This collaboration does exactly that. The combination of Citizens Bank’s powerful customer-facing brand and our digital lending platform will allow us to collectively serve more customers with best-in-class products and a best-in-class customer experience.”
Citizens Bank recently announced a partnership with digital wealth management service SigFig, to offer customers integrated banking and digital investment services starting in early 2017.
Fundation recently announced strategic partnerships with Regions Bank, the BancAlliance community bank network, and the Department of Commerce’s Minority Business Development Agency. Fundation also recently secured a $100 million credit facility from Goldman Sachs, which bolsters its capacity to extend credit to small businesses across the United States through its banking and other strategic partnerships.
The digital lending service is subject to the negotiation of a definitive agreement between Citizens Bank and Fundation.
About Citizens Financial Group, Inc.
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $147.0 billion in assets as of September 30, 2016. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. In Consumer Banking, Citizens helps its retail customers “bank better” with mobile and online banking, a 24/7 customer contact center and the convenience of approximately 3,200 ATMs and approximately 1,200 Citizens Bank branches in 11 states in the New England, Mid-Atlantic and Midwest regions. Citizens also provides wealth management, mortgage lending, auto lending, student lending and commercial banking services in select markets nationwide. In Commercial Banking, Citizens offers corporate, institutional and not-for-profit clients a full range of wholesale banking products and services including lending and deposits, capital markets, treasury services, foreign exchange and interest hedging, leasing and asset finance, specialty finance and trade finance. Citizens operates through its subsidiaries Citizens Bank, N.A. and Citizens Bank of Pennsylvania as Citizens Bank, Citizens Commercial Banking and Citizens One. Additional information about Citizens and its full line of products and services can be found at citizensbank.com.
About Fundation
Fundation Group LLC is a digitally-enabled lender and credit solutions provider. The Company develops integrated small business lending solutions with banks, enabling them to deliver credit online, drive cost efficiency into their lending programs and maximize customer retention by providing a positive customer experience and meeting the needs of the small businesses they serve. The Company also partners with a wide array of organizations that serve the small business market in various capacities to deliver credit products to the business community nationwide. For more information, please visit www.fundation.com.
Regions Eyes Small Business Loans in Latest Tech Deal
Regions' latest partnership will increase loan opportunities for underserved businesses.
A unique partnership between Regions and two other companies could be the start of even bigger things for the company.
A partnership that has been ongoing for more than a decade between Regions Bank and TruFund recently became the latest avenue for Regions to tap into financial technology.
Regions (NYSE: RF), TruFund and online lender Fundation Group struck a deal to work together on a new initiative to provide small-dollar loans for underserved small businesses.
It’s a deal executives say could lead to even more tech-based offerings from Birmingham’s largest bank.
The new agreement will allow small businesses that may not be eligible for traditional bank loans to have access to small loans for working capital or expansion activities. Using Fundation’s platform, small businesses could access funds in as little as 48 hours from their applications.
“This is taking something we were already doing and bringing it into the digital age,” said Joe DiNicolantonio, head of Regions Business Banking. “We have worked with TruFund for over 10 years now, and this was a great way to bring a service to our customers that was much-needed.”
Regions has been working with TruFund since 2002, and inked its deal with Fundation in October of last year.
While Regions doesn’t have a public dollar target for the program, the company told the Birmingham Business Journal that the intent will be to provide microloans between $15,000 and $50,000 through the agreement. Fundation will make the loans, with Regions purchasing them on the back end. TruFund does not currently offer those smaller dollar loans.
DiNicolantonio said the new agreement gives Regions the ability to strengthen small businesses in the communities in which the bank serves.
“What this relationship does is give more access to capital in the communities we serve, and meets the needs of these small businesses,” he said.
DiNicolantonio said when the bank finalized a deal with Fundation last fall that 20 percent of small business owners in the U.S. are already turning to online lenders to meet their credit needs.
In addition to expanding loan product offerings and methods of delivery for businesses, DiNicolantonio said the partnership will also cultivate long-term revenue and loan growth opportunities for Regions.
Boosting revenue and loans is something analysts have regularly said is important for Regions, which has been able to boost its profits in recent years largely on the strength of reduced expenses.
The agreement is one of many ways Regions and other Birmingham banks have embraced financial technology and online lenders. BBVA, the parent company of Birmingham’s BBVA Compass purchased Simple - a major player in the online banking industry - in 2014, and recently took a 29.5 percent strategic partner stake in Atom, the UK’s first mobile-only bank.
Financial technology has been one of the methods banks such as Regions and BBVA Compass have been able to grow outside of Alabama, and reach a broader customer base.
DiNicolantonio said all of the deals similar to this one are made with customer demand in mind.
“We did a lot of due diligence with this,” he said. “Just like everything else, this came about after we identified a need. We spent months looking at data and what the need was and where we could go with it.” DiNicolantonio added that he believes the success of this new partnership might clear the way for more such technology-driven financial products with the bank.
“We do think this is a progression and something that can be leveraged into something bigger,” he said.
Stephen Yoder, assistant professor at the University of Alabama at Birmingham and of counsel at Balch & Bingham, said he thinks you’ll see more similar agreements pop up in the banking world.
“When gathering deposits was more important to banks in the early 2000s, banks had arrangements for brokered deposits. Now that loans are more important and there are a growing number of online, nonbank lenders, it makes sense that banks would join forces with them to find borrowers,” he said. “The fintech companies need the banks because they usually lack capital.”
Regions Bank, Fundation and TruFund Work Together to Provide Loans to Underserved Small Businesses
September 14, 2016 09:00 AM Eastern Daylight Time
BIRMINGHAM, Ala.--(BUSINESS WIRE)--Regions Bank, together with Fundation Group LLC, a digitally-enabled small business lender, and TruFund, a Community Development Financial Institution (CDFI), today jointly announced a first-of-its-kind agreement to provide small dollar loans to underserved small businesses.
Through this unique and collaborative agreement among a regional bank, a digitally-enabled lender and a CDFI, underserved small businesses that may not be eligible for traditional bank loans will have the opportunity to apply for small dollar loans for working capital and expansion activities.
This agreement allows more small businesses to benefit from TruFund’s hands-on approach to helping small businesses. Using the online lending expertise of Fundation, small business clients will have increased availability and access to funding, in as fast as 48 hours from application. Regions has also pledged to provide capital, assisting both TruFund and small business customers.
“Regions has worked with both TruFund and Fundation in the past, and bringing these two organizations together is a natural fit. It expands both of their abilities to meet client needs and provides more access to credit for small businesses,” said Joe DiNicolantonio, Executive Vice President, Commercial Banking at Regions Bank.
Sam Graziano, CEO of Fundation Group LLC, said, “This program is exactly what Fundation is built for, combining our technology and small business lending expertise with the capabilities of our partners to expand access to capital for small businesses.”
In 2015, Regions and Fundation announced an agreement that expanded both companies’ abilities to provide credit to small business borrowers.
“This unique partnership will provide small business owners with an affordable source of microloan capital,” said James H. Bason, President of TruFund Financial services. “The way small businesses borrow money is being transformed, with faster and easier ways to access credit, and TruFund is proud to have worked with Regions Bank and Fundation to find an innovative solution that supports economic growth and increases access to credit in the small business community.”
About Regions Financial Corporation
Regions Financial Corporation (NYSE:RF), with $126 billion in assets, is a member of the S&P 500 Index and is one of the nation’s largest full-service providers of consumer and commercial banking, wealth management, mortgage, and insurance products and services. Regions serves customers across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates approximately 1,600 banking offices and 2,000 ATMs. Additional information about Regions and its full line of products and services can be found at www.regions.com.
About Fundation
Fundation Group LLC is a digitally-enabled lender and credit solutions provider. The Company develops integrated small business lending solutions with banks and partners with a wide array of other organizations that serve the small business market in various capacities to deliver credit products to the business community nationwide. For more information, please visit www.fundation.com.
About TruFund Financial Services
TruFund Financial Services, Inc. is a wholly independent national non-profit Community Development Financial Institution (CDFI). TruFund seeks to stimulate economic development in communities that are underserved by traditional banking institutions by providing fair and accessible capital, hands-on technical assistance and innovative solutions to small businesses and nonprofit organizations.
Contacts
Regions Bank
Mel Campbell, 205-264-4551
[email protected]
or
Fundation
Barry Feierstein
[email protected]
571-418-6387
or
Trufund Financial Services, Inc.
Kim Carter Evans, 646-385-6946
[email protected]
Is The Future Of Alt-Lending Playing Well With Others?
No one knows who exactly first said, “if you can’t beat ’em, join ’em.”
So far as the finest minds on the subject can gather, the original phrasing was “if you can’t lick ’em, join ’em,” and it was first used in the 1940’s by anti-New Dealers who were beginning to understand that beating FDR was not in their immediate future. By the 1960’s, the phrase had taken the modern form we all know it to be —apparently permanently burned into the American consciousness by a series of advertisements for cigarettes.
However it came into popular use — it’s not a bad slogan for how 2016 has gone so far.
Sure, there have been some big outliers — the Brexit is not exactly a ringing endorsement of the concept of unity — but actually, on the whole, it’s been a good 12 months for joining up.
The biggest and most surprising change of direction on the “beating” vs “joining” question doubtlessly comes from the rapidly evolving world of online lending.
Until very recently, online banking was widely believed to be an unstoppable bank slayer. As recently as a year ago, alt lending CEOs were commonly touting as inevitable the ascension of online lenders over big and inefficient banks in regards to consumers and SMB lending.
These days the claims have gotten a bit less lofty, and victory focused — with a lot more founding CEOs sounding a bit like Fundation’s founder Sam Graziano, and touting their ability to cooperate rather than crush.
“Marketplace lending was going to change the state of banking, but that’s not really the case,” Graziano noted.
The banks, for a variety of reasons, aren’t going anywhere, which means a lot of lenders like Fundation are looking more into joining — and to connecting their lending platform to those banks customers.
But Fundation is unique in that unlike other lenders that still work to attract consumers to their own individualized offerings, Fundation is content to stay entirely in the background and work purely through their partners.
And while that approach is unusual in its segment, the SMB lending start-up obtained a $100 million asset-backed credit facility from Goldman Sachs that it plans to use to expand its capacity to extend credit to small businesses via strategic partnerships with banks. And, according to Graziano, it is a path that will likely become more common as the lending marketplace continues to evolve.
The Mounting Pressures To Be Good Cooperators Instead Of Competitors
Offering better credit scoring, faster decisions and more flexible platforms for borrowers, online lending managed to show up in one of the all-time most right places at the most right time. Consumers and small businesses needed access to credit, banks burned badly by the financial crisis weren’t offering it and various investors had no way to make any money because efforts to stimulate the economy left the interest rate at a less than inspiring zero.
Online lending, particularly its marketplace variant, solved a lot of problems at once and quickly attracted interest from all corners. By 2015 it seemed certain to many sober judges that lending was a business that technologists were going to slowly devour out from under the banks.
But a year can make a big difference, and the summer of 2016 is a very different place than the summer of 2015.
Today, investors have more options — less risky ones (more on that in a second) — and that has resulted in fewer marketplace loans getting bought.
Borrowers also have more options as credit has thawed for even sub-prime buyers.
Compounding matters, online lenders have suffered some severe reputational damage in 2016. Despite widely touted credit evaluation tools, various platforms have seen increases in default rates, in some cases at high enough rates to take a serious bite out investors’ bottom lines. That was already background noise when the Lending Club debacle unfolded — and left even a lot of online lending boosters wondering if perhaps the Wild West environment of tech-based lending had gotten a bit out of control.
And then, As Graziano notes, there is the other structural problem with the marketplace — it is way too popular a place to be.
“It’s saturated. Hundreds of platforms are going after the same pool of customers.”
So the choice was simple for Fundation: It could fight for a slice of the market that is static at best — shrinking at worst — with a massive number of competitors.
Or it could do something else.
Working Behind The Banks
Unsurprisingly, Fundation went with the option behind door number two.
“We decided to be an integrated partner of the banking system,” Graziano noted.
Similar to competitors in the space, Fundation offers loans to small businesses of $500K or less, with annual rates around 30 percent. Some of the loan is kept as a fee — but the profit center is loans held on its balance sheet from its own capital.
But Graziano describes Fundation as a “credit solutions provider” more than a lender — noting that the power of its offering is in the tools it offers around online applications and data-intensive credit algorithms to partners.
“It’s not a disintermediation story, but we can still help make more loans,” he said.
How Fundation — which eschews marketplace models for bank-partner lending — has grown is hard to measure since the firm declines to disclose lending volumes or revenues. But given billions loaned out by marketplace lenders last year, it can be safely assumed that Fundation has a lot of growing to do before it’s in the same category.
But Fundation is growing – now with credit facility from Goldman.
“We are excited to have garnered Goldman Sachs’ support. This transaction further strengthens our balance sheet and reinforces our unique position in the small business lending marketplace,” Graiziano noted.
His position is that Fundation is content to grow more slowly and steadily than the more explosive players in online lending.
Joining the banks might not be as exciting as beating them — but if it turns out to be less volatile and more broadly profitable, calm cooperation might just trump the competitive fireworks.
Goldman Inks $100 Million Credit Facility For Online Lender Fundation
The new credit line will help the firm expand its recent partnerships
By TELIS DEMOS
Aug. 23, 2016 9:29 a.m. ET
Another lending upstart has declared that joining banks—rather than beating them—is the way to go.
Fundation Group LLC, which makes online business loans, this week completed a $100 million credit facility with Goldman Sachs Group Inc., according to the lender’s chief executive.
The new credit line will help the firm expand its recent partnerships, including those with traditional banks, such as Regions Financial Corp. and a network of community banks, to extend loans to the banks’ business customers.
Fundation, launched in 2013, is the latest hopeful lending startup to argue that joining with banks to fund loans and find customers is a better model than seeking out customers by advertising on the web and then selling the loans directly to investors, the so-called marketplace model.
“Marketplace lending was going to change the state of banking, but that’s not really the case,” said Fundation CEO and co-founder Sam Graziano, a former investment banker at Centerview Partners and Keefe, Bruyette & Woods.
“It’s saturated. Hundreds of platforms are going after the same pool of customers,” he said. “We decided to be an integrated partner of the banking system.”
Other startup lenders, including On Deck Capital Inc., Kabbage Inc., and LendingClub Corp., have likewise joined with banks, but also seek to get borrowers to apply directly through their websites and mobile apps.
Marketplaces have had a difficult 2016, finding fewer buyers for their loans. On Deck, for example, has moved to fund more of its loans with its own capital, rather than selling them, citing tough market conditions.
Mr. Graziano describes Fundation as a “credit solutions provider” rather than a lender, providing digital tools like online applications and data-intensive credit algorithms to partners. “It’s not a disintermediation story, but we can still help make more loans,” he said.
Through its partners, Fundation offers term loans of up to $500,000 with annual rates under 30%. It keeps a small percentage of the loan as a fee, and makes money from the loans it holds with its own capital.
It isn’t yet clear whether bank-partner lenders can grow as big as marketplaces, which originated billions of loans last year. Mr. Graziano declined to provide total lending volume or revenue figures.
In addition to banks, and a small amount via its own website, Fundation partners with business-service providers such as Wolters Kluwer N.V. to make loans. It also recently began working with the U.S. Department of Commerce’s Minority Business Development Agency to facilitate lending.
Fundation is majority owned by Garrison Investment Group, a credit investment firm. Garrison was an early institutional investor in LendingClub loans. The company initially holds loans before selling them to bank partners, who in some cases agree to buy them in advance, and in other cases have an option to do so. Fundation will now place a portion of the loans it holds with Goldman in the new credit facility. The Wall Street firm will also be paid a fee in the arrangement. The loans could later be sold to investors via securitization, but there is no current plan to do so, Mr. Graziano said.
Fundation Secures $100 Million Credit Facility from Goldman Sachs
Credit Facility Provides Funding for Acceleration of Company’s Growth
August 23, 2016 09:45 AM Eastern Daylight Time
NEW YORK--(BUSINESS WIRE)--Fundation Group LLC, a leading digitally-enabled lender and credit solutions provider, today announced that it has obtained a $100 million asset-backed credit facility from Goldman Sachs. Fundation will use this credit facility to accelerate its growth by increasing its capacity to extend credit to small businesses across the United States through its various strategic partnerships.
Fundation focuses on developing strategic partnerships with banks, other financial institutions, and various service providers to the small business market. Fundation enables its bank partners to leverage Fundation’s platform to offer an online lending capability to their customers, drive cost efficiencies and serve more customers. Fundation also develops strategic partnerships, delivering capital to small businesses through integrations with partners that serve the small business market in various forms. In the past year, Fundation has announced strategic partnerships with Regions Bank, Alliance Partners, the manager of a 200-member community bank network, and the Minority Business Development Agency, a division of the United States Department of Commerce.
Fundation, majority owned by Garrison Investment Group, retains the vast majority of loans that it originates on its balance sheet. Fundation expects that this commitment, and other similar arrangements, will fund the majority of loan originations going forward.
About Fundation
Fundation Group LLC is a digitally-enabled lender and credit solutions provider. The Company develops integrated small business lending solutions with banks, enabling them to deliver credit online, drive cost efficiency into their lending programs and maximize customer retention by providing a positive customer experience and meeting the needs of the small businesses they serve. The Company also partners with a wide array of organizations that serve the small business market in various capacities to deliver credit products to the business community nationwide. For more information, please visit www.fundation.com.
Contacts
Media:
Fundation
Barry Feierstein
[email protected]
571-418-6387
or
Goldman Sachs
Michael DuVally, 212-902-2605
MBDA and Fundation Partner to Broaden Minority Businesses’ Access to Capital
Partnership Positions MBDA Business Centers to Offer Streamlined Lending Process
Provides Minority Business Enterprises with Enhanced Financing Options
July 21, 2016 11:00 AM Eastern Daylight Time
WASHINGTON & NEW YORK--(BUSINESS WIRE)--The U.S. Department of Commerce Minority Business Development Agency (“MBDA”) and Fundation Group LLC announced today a memorandum of understanding (MOU) designed to provide U.S. minority business enterprises (MBEs) with cutting edge, digitally-enabled financing solutions and expanded access to capital.
MBDA, a bureau of the U.S. Department of Commerce, currently operates a national network of 38 business centers equipped with specialists who help the nation’s minority-owned businesses grow. Center specialists assist clients with access to capital, contracts, and new markets opportunities to create new jobs.
Fundation Group LLC, one of the nation’s leading digitally-enabled small business lenders and financing solutions providers, offers simple, fixed-rate conventional term loans, lines of credit and credit products for small businesses through its banking and other partnerships.
Major provisions of the MOU include:
Collaborating and utilizing both MBDA and Fundation’s capabilities and technical resources to provide expanded access to capital across the country;
Educating businesses on best practices through joint business webinars and/or workshops for clients, program participants and stakeholders; and
Connecting MBDA Business Centers and clients to Fundation’s Partner Portal and lending platform for a streamlined and simplified lending process.
Alejandra Y. Castillo, MBDA National Director, said, “This is truly an exciting opportunity for both MBDA and Fundation. Fundation’s programs and resources will offer quick and accessible financing options for MBEs looking to grow and manage their cash flow at the most competitive pricing outside of the banking system. This partnership will also allow us to work together to support and spotlight the successes of MBEs across the nation.”
Sam Graziano, CEO of Fundation Group LLC, said, “We are thrilled to partner with MBDA to serve the MBE community. Young and growing small businesses need a lot of things to be successful. The combination of MBDA’s capabilities with ours will offer MBE’s with both high quality business advice and best-in-class credit products, two of the cornerstones in any growing enterprise.”
The official signing of the MOU took place on July 21, 2016 at the office of Nelson Mullins Riley & Scarborough, LLP in Washington, DC.
About the Minority Business Development Agency (MBDA)
MBDA, www.mbda.gov, is the only Federal agency dedicated to the growth and global competitiveness of U.S. minority-owned businesses. Our programs and services better equip minority-owned firms to create jobs, build scale and capacity, increase revenues and expand regionally, nationally and internationally. Services are provided through a network of MBDA Business Centers. After 47 years of service, MBDA continues to be a dedicated strategic partner to all U.S. minority-owned businesses, committed to providing programs and services that build size, scale and capacity through access to capital, contracts and markets. Follow us on Twitter @usmbda.
About Fundation Group LLC
Fundation Group LLC is a digitally-enabled lender and innovative financing solutions provider. The Company partners with banks, other financial institutions and a variety of strategic organizations that serve the small business market to offer loans and deliver value-added credit solutions. Fundation offers dependable, customized products and digital delivery methods to meet the needs of each unique partner and the related credit needs of the small businesses they serve. For more information, please visit www.fundation.com.
Contacts
Media:
Minority Business Development Agency
Dijon Rolle, 202-482-1375
[email protected]
or
Fundation
Barry Feierstein
[email protected]
571-418-6387
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.
BY SAM GRAZIANO
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.
DIGITALLY ENABLED LENDERS
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.