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Recent White Papers Covering Lending and Risk During the Crisis

We recently published two white papers to help lenders navigate the current crisis.

September 3, 2020 By Todd Anderson Leave a Comment

Coming out of the crisis will be hard work for lenders of all stripes. We recently featured two white papers that will help act as a guide on how to prepare for the future and ensure your lending operation is on solid footing.

Operational Efficiency in a Growing and Uncertain digital world – sponsored by Urjanet

What is this paper about?

Financial institutions face unprecedented business challenges as a result of the COVID-19 pandemic. It is expected that profit before taxes in the banking industry will drop from 50-100% as a result of misalignment of short-term revenue and expenses resulting from the fallout. According to TransUnion, over 100 million accounts showed signs of financial distress as borrowers deferred debt payments from March to June.

Between an increase in delinquencies, the abrupt shift to digital transactions, and unexpected surges in demand for credit, it is critical for lenders to incorporate data sources beyond traditional credit data.

This paper will explore the process of incorporating and expanding the use of alternative data to promote growth, minimize risk, and improve operational efficiency as banks and lenders recover during and after the COVID-19 pandemic.

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A Banking and Lending Guide to Crisis Recovery – sponsored by Salesforce

What is this paper about?

Banks and lenders have had to quickly adapt to changing regulations, work environments, and market conditions during the COVID-19 pandemic. In this white paper, learn how to build resilience, adapt to new regulations, and accelerate your bank’s growth in changing times.

Key Points:

Pursue growth by responding strategically to opportunity
Adopt an agile decision-making process
Reimagine office life
Adapt to your customers’ changing needs
Create lasting impact through community service

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All of the Fintechs Involved in PPP Loans

We share all of the fintech lenders who are currently involved in the Paycheck Protection Program

April 16, 2020 By Ryan Lichtenwald 7 Comments

It has been an interesting to say the least as we have watched everything play out with the Paycheck Protection Program loan process. Fintechs were eager to help small businesses with the $349 billion initially allocated to small businesses but initially there wasn’t clarity on when it might be possible. For many who wanted to be among the first to apply, going through a bank was the only option as LendIt Fintech experienced firsthand. As we stand today there are now many fintechs, both lenders and banks involved in the process although the initial $349 billion allocated to the PPP has run out, according to Senator Rubio this morning. It is expected that Congress will appropriate additional funds soon.

Approvals started with small business lenders like Kabbage, made possible through an unnamed bank partner. Then this week we saw lenders get approved on a standalone basis. Other fintechs have taken an entirely different route. StreetShares had originally planned to offer SBA loans but then opted to instead partner with Fiserv. They are providing to them a secure portal for bankers to review and prepare documents while also providing application processing and eligibility checks.

If you’re looking for a full list of PPP lenders, Gusto has created this helpful Google sheet which continues to be updated with the status of each lender.

We will continue to update the list below as more fintechs get approved.

Approved Fintech PPP Lenders

PayPal
Quickbooks
Square
OnDeck
Funding Circle
Kabbage
Bluevine
Credibly
Fundbox

Fintechs Working with Partner Banks for PPP Loans

Fundera
Lendio
Brex
Nav
SmartBiz
Biz2Credit

Fintech banks processing applications

Cross River Bank
Celtic Bank
Radius Bank
Sunrise Banks

It is difficult to overstate the importance of the PPP for the health of American small business. For many, it will have come too late but for millions of small businesses this money will allow them to stay in business and keep paying their employees. Congress needs to set aside its differences and provide more money for this program immediately. There is still a huge number of small businesses that need this money.

Fintechs Authorized to Make Small Business Loans as Part of Government Stimulus

Treasury Secretary Steve Mnuchin went on record stating that any fintech lender will be authorized to make loans as part of the government stimulus.

March 30, 2020 By Ryan Lichtenwald 2 Comments

Last week the government passed a stimulus package called the CARES Act which included $349 billion in loan guarantees for small business. This was a major topic covered in our recent webinar where various fintech companies in the small business lending space shared how they were ready and willing to help small businesses. However, the question remained whether fintechs would be included to help get funds distributed to the many small businesses who are desperately in need of capital.

Over the weekend we received clarity, with Treasury Secretary Steve Mnuchin stating:

“Any FDIC bank, any credit union, any fintech lender will be authorized to make these loans to a small business subject to certain approvals.”

This is great news not just for fintech but for small businesses everywhere. It is only by engaging with fintech lenders, many of whom have end-to-end digital processes, that small businesses will be able to get access to these loans in a timely fashion. Of course, we don’t know what “certain approvals” means but the government knows they have to move quickly.

The small business loan program is expected to be up and running in the coming week so it will be interesting to see just how fast funds will flow through small businesses. The government is saying that funds will start to be received in as little as three weeks from now. But with potentially many millions of loans to get out the door it is going to be a Herculean task to get this money out quickly.

It is great to see the government acknowledging the importance that fintech companies play in our financial system today. While it is certainly too soon to make any predictions this may be a time for fintechs to shine as they demonstrate their ability to move fast to help American businesses.

Kabbage Launches Kabbage Insights to Further Help Small Businesses with Cash Flow

Kabbage Insights provides real-time information to help small businesses determine the best next steps for their business.

March 4, 2020 By Ryan Lichtenwald Leave a Comment

Kabbage continues to look into how they can serve small businesses in new ways. We recently shared Kabbage’s announcement of extremely short loans from three to forty-five days. This offering was part of the launch of Kabbage Payments, which further integrates Kabbage’s offering into small businesses.

Today, Kabbage announced the launch of Kabbage Insights which aims to help small businesses better understand their cash flow. Kabbage Insights looks at transaction activity to put together a dashboard of financial data. Using this information small businesses can better anticipate changes, allowing them to know when to cut expenses, invest further into the business or seek out financing.

According to the press release:

As a leader in predictive analytics and artificial intelligence for small businesses, Kabbage Insights produces personalized forecasts to predict the future cash position of a business. Customers can then set a desired low-balance threshold and receive automated alerts if accounts are predicted to dip below it, empowering small businesses to identify, act upon and prevent cash deficits before they occur.

Another interesting feature is the ability for the small business to compare their company performance to that of a similar sized small business made possible by the Kabbage Small Business Revenue Index. Kabbage’s 220,000 small business customers will have immediate access to the new tool.

Kabbage Offering Extremely Short Duration Loans from Three to Forty-Five Days

The new loan program aims to help Kabbage Payments customers better manage cash flow.

February 5, 2020 By Ryan Lichtenwald 1 Comment

Kabbage is one of the leaders in small business lending and recently announced custom loans for their Kabbage Payments customers. By way of background Kabbage Payments allows for businesses to invoice customers, accept card payments and manage customer and item information

When we think of short term loans in small business lending we often think 6, 12 or 18 month terms, but the new loan program will offer loans as short as 3 days and up to 45 days. It aims to solve for the cash flow challenges many small businesses face.

Borrowers will have the ability pay the loan back when the loan matures or as an alternative to allocate a percentage of Kabbage Payments revenue towards the balance over the term. If opting for the latter the borrower will pay any remaining balance at the end of the term. These custom loans have a one time fee starting as low as 0.1%.

CEO Rob Frohwein provided this statement in the press release:

We’re changing the dynamics of cash flow for small businesses by integrating solutions that help them quickly settle payments and access flexible funding to better manage their businesses.

It is amazing today the number of options that small businesses have for financing. It would have been hard to imagine a decade ago that a small business could get a loan for such a short duration and that it would be financially feasible for a small business lender to provide these loans. With this new product the main alternative for a small business lender is a credit card.

Goldman Sachs May Power Future of Lending at Amazon

Amazon merchants may soon be able to get loans with help from Goldman Sachs.

February 4, 2020 By Ryan Lichtenwald Leave a Comment

Lending is not a new business for Amazon, but it is not a burgeoning business…yet. Last year the Financial Times shared details on their offering and how growth had stalled. Amazon has been lending to small businesses since 2011. Outstanding loans nearly doubled between the end of 2015 and end of 2016 to $661 million but growth was just 4.7% the following year. Growth in 2018 was a mere 2.6% which is at least partially attributable to the company taking a careful approach to lending. Loans were offered at interest rates from 6% to 17% to small businesses selling on the platform.

The FT suggested that Amazon was slated to grow going forward, hiring both in Europe, Asia and in Seattle. Besides sharing data as part of their annual report, Amazon is secretive on future plans.

Now Amazon is reportedly going to be working with Goldman Sachs on their small business loans. According to sources as reported in a CNBC article, Goldman has been working on software which would allow them to simply plug into Amazon’s current loan platform. Last week Goldman was also in the news holding their first ever investor day which included their ambition to be a banking as a service provider and this might be the latest example of that. Many are aware that Goldman Sachs already powers the Apple Card which was released last year. Bank of America was also once involved in Amazon’s small business lending operation.

Not surprisingly representatives from both Amazon and Goldman declined to speak on the topic, but if the partnership comes to fruition it is going to be interesting to see how Amazon lending scales from here. Amazon has also been reportedly working on a checking account which we haven’t seen hit the market yet.

PayPal Crosses $10 Billion In Small Business Loans

PayPal continues to grow their small business lending operation and is originating $1 billion per month

May 29, 2019 By Ryan Lichtenwald 1 Comment

PayPal is a company whose name is much more synonymous with payments than lending. However, that might be changing as the company announced that they had crossed $10 billion in lending.

The originations were spread out across 225,000 small businesses around the globe. While their US lending business may be familiar to many, they also operate in the UK, Australia, Germany and also Mexico through a partnership with another online lending platform.

It took the company five years to reach the $10 billion milestone and almost two years to pass the $1 billion mark. Now they are hitting some impressive quarterly milestones, originating $1 billion per quarter, so their next $10 billion is surely to happen even quicker.

Their success is in part due to the wide range of loan amounts, from $1,000 to $500,000. So where does PayPal stand when it comes to their competition? deBanked recently highlighted the leading small business originators which showed that PayPal is solidly the leader when it comes to originations in the US. OnDeck which is second to PayPal reported originations of $636 million in Q1 2019. According to data provided by Funding Circle on their website, which includes their lending globally, they have originated $9.5 billion in loans.

Image credit: deBanked.com

Beyond just looking at origination numbers, it’s important to take note of the value that all of these small business lenders are providing to small businesses both in the US and abroad. When you look at the fact that on average a loan from the U.S. Small Business Administration takes 90 days to complete and that traditional banks have ignored this segment for years, it’s clear that there is room for many winners in the small business lending market. Looking forward it’s going to be interesting to see how all of these lenders evolve to provide much needed capital to small businesses across the globe.

Upgrade Valued at $500 Million after $62 Million Series C Round

Renaud Laplanche's Upgrade continues to see significant interest from investors as origination growth continues.

August 23, 2018 By Ryan Lichtenwald Leave a Comment

Renaud Laplanche speaking at LendIt Fintech USA 2018 in San Francisco, CA on April 10, 2018

Renaud Laplanche’s vision for a second generation lending platform seems to have struck a chord with borrowers and investors alike. We learned at LendIt Fintech USA 2018 that the company was originating around $100 million a month at the time, and now has crossed $1 billion in originations

Today, the firm announced their Series C financing round of $62 million, led by the CreditEase Fintech Investment Fund. This new funding round reportedly values Upgrade at $500 million, an impressive number given they made their first loan just 16 months ago.

We spoke with CEO and Co-Founder, Renaud Laplanche, who gave us an update on the business and what is driving investor interest.

The CreditEase Fintech Investment Fund is not a new name to those who follow the fintech space, but many people don’t realize that it is the largest fintech-focused investment fund in the world. The $1 billion fund has participated in every Upgrade round, but this is the first time they are leading a round in a US based fintech. They have chosen to take a more active role in Upgrade and Anju Patwardhan, Managing Director at CreditEase will be joining the Upgrade board.

When we asked Laplanche to give us his perspective on their investment he shared that the CreditEase Fintech Investment fund understands Upgrade’s value proposition of building a second generation online lender.

Upgrade builds upon what he and others have learned over the last decade or so in online consumer lending. Laplanche also believes that Upgrade can become a household name and deliver products to meet all of a consumer’s credit needs. Upgrade was built from the ground up to offer a full range of consumer credit products. They have already made inroads on delivering on that vision with their launch of the personal credit line and Laplanche hinted that development on new products and innovations are well underway.

[Read more…]

Funding Circle Announces Next Phase of Bank Partnership

The next phase of the bank partnership will allow more small businesses to access Funding Circle Loans

June 26, 2018 By Ryan Lichtenwald Leave a Comment

Bank partnerships take many forms and there many examples today of win-win relationships between banks and fintechs. Earlier this year Funding Circle US announced a partnership with INTRUST Bank, a US regional bank with headquarters in Kansas. Today, Funding Circle shared that the partnership had expanded.

The next phase of the partnership increases INTRUST’s funding commitment and also marks the launch of a co-branded marketing campaign. So far 150 small businesses have received loans from Funding Circle which were funded by INTRUST. With the expanded partnership they expect this number to increase to 500 business owners across Kansas, Missouri, Oklahoma, and Arkansas.

Bernardo Martinez, US Managing director at Funding Circle provided the below prepared statement in the press release:

We are thrilled that INTRUST Bank has chosen to implement the next phase of our partnership. Not only has INTRUST recognized the investment opportunity available through the Funding Circle platform, but this expansion underscores that Funding Circle’s loans are often the best option on the market for American business owners seeking growth capital. We view our partnership with INTRUST as a blueprint for the remaining geographies within the US.

We often read about these types of bank partnerships, but it is rare that we get updates on how they are progressing. In just six months this partnership has resulted in 150 businesses accessing affordable access to credit. These businesses may have never become aware of the options with Funding Circle if it wasn’t for this partnership which demonstrates the true power of these types of relationships.

New Report on the Impact of Online Lenders on Small Businesses

A new report by economic research firm NDP Analytics shares data on how online lenders are helping small businesses thrive.

May 31, 2018 By Ryan Lichtenwald 1 Comment

Today a new report was released on how online lenders are helping small businesses which in turn is creating economic activity across the US. The report titled “The Economic Benefits of Online Lending to Small Businesses and the U.S. Economy” was put together by NDP Analytics and was sponsored by the Electronic Transactions Association, the Innovative Lending Platform Association (ILPA) and the Small Business Finance Association (SBFA).

Most of us are aware of the importance of small businesses in the US economy. Small businesses employ over half of private-sector workers in the US, so access to capital for small businesses is critical to their success. Fortunately, online lenders such as the ones mentioned in the report have focused on serving the needs of businesses and activity has picked up over the last few years. Both awareness of these alternative options and the amount lent on these platforms is increasing. Originations at five leading online small business lenders increased by 50% in three years, from $2.6 billion in 2015 to $3.9 billion in 2017.

Nearly $10 billion of funding was provided to 180,000 small businesses from 2015 to 2017 according to data which included leading platforms OnDeck, Kabbage and Lendio. This activity has generated $37.7 billion in gross output, created 358,911 jobs and $12.6 billion in wages.

Another highlight of the study was reporting on where these small businesses are operating. Almost one third of small business borrowers are in lower-income communities and about 24% of this borrower demographic are micro businesses with less than $100,000 in annual sales.

What makes small business lending unique is the amount of capital needed can vary widely and one of the reasons online small business lenders have been successful is because they have been able to efficiently underwrite smaller dollar loans. According to the study:

About 42 percent of small businesses borrowed between $10,000 and $50,000 from five online small business lenders with the average amount being $55,498.

One of the most interesting data points from the research was that on average, for every $1 lent to small businesses, sales for these small business borrowers increased by $2.31, creating $3.79 in gross output in local communities across the country.

As Nam Pham, Ph.D., report author and Managing Partner at NDP said in the press release:

The economic benefits of online lending are far reaching and extend beyond the funding used by small businesses to maintain or expand their operations. As these businesses succeed, so do the communities around them. Small businesses are increasingly turning to online lenders to help cover inventory, payroll for employees, and other expenses at critical junctures in their growth. The loan impacts not just the borrower, but those who work and engage with that business.

Conclusion

The small business lending market looks vastly different than it did 10 years ago. Not only are there more lending choices for small business owners than ever before but these choices are quicker and more convenient than in the past. The platforms included in this study and other innovative online small business lenders have been the driving force behind this shift. It’s a great to see a report put together which highlights just how impactful access to capital can be and it is a sign of great things to come as this market continues to grow.