We talked to Brock Blake, founder and CEO of Lendio and a contributor at Forbes.com, about the state of small business lending and financial technology in general.
Brock Blake is out to change the way small businesses get funded and in turn fuel the American dream. Years ago, he learned that small business owners get rejected 80 to 90 percent of the time they apply for a loan even when they have banked with an institution for more than a decade.
Blake also found that each lending institution looks at underwriting differently and that just because someone is declined at one institution doesn’t mean they will be declined elsewhere. However, most small business owners don’t have time to check with ten different institutions to find the one that will lend them money. “It’s a tragedy,” Blake says, “because small business owners are the lifeblood of the economy in the United States.”
This is where Lendio comes in. By aggregating a network of lenders (including alternative lenders), Lendio serves as an intermediator between small business owners and the institutions that lend them money. The small business owner signs into Lendio’s site, fills out the proper forms, gets offers from multiple lenders, and then selects the offer that best meets their needs.
Blake says that the opportunity for Lendio opened up largely because banks were less prone to make small loans after the 2008 financial crisis. “Banks moved upstream and started focusing on larger loan sizes to more established businesses,” he said. “What that did was leave this funding gap where small businesses that needed $25k, $50k or $100k didn’t have a lot of options.” These are the type of loans that Lendio gets involved with.
Financial institutions have also been increasingly willing to adopt new technology, something that Blake is excited to see. To him, the current model isn’t so much about fintech companies versus financial institutions as it is about both working together to better serve the consumer. Blake cited the recent acquisition of OnDeck Capital by JPMorgan Chase as an example. Where JPMorgan Chase generally isn’t interested in making small loans themselves, they can now use the technology developed by OnDeck to grow this line of business.
According to Blake, this trend toward convenience will continue to grow as we move further into the digital age, and traditional banking drops in popularity. “I can’t tell you the last time I went inside a bank,” Blake said. "Technology allows me to access my accounts, pay with my phone, look at my deposits, wire transfers, and deposit checks."
To best prepare for this industry shift Blake says that banks and credit unions must find ways to partner with fintech providers. He adds that “there’s a fantastic group of providers that will help banking accept this evolution because they can employ the dreamers, entrepreneurs, and technology talent.” By partnering together, financial institutions and fintech companies can thrive in the digital age.
However, the threat of alternative lenders for traditional banking shouldn’t be understated. Blake outlined how alternative lenders are moving upstream from loans of $25k to loans of $100k and even $250k to $500k. Along with this rise in loan volume, the process will continue to get easier and easier. “I do believe that as alternative lending algorithms become smarter, the underwriting will get faster — to the point that you’ll be able to provide some info from your mobile phone and qualify for a substantial business loan within hours.” As the process with alternative lenders improves, they will increasingly take share from traditional players and shake up the industry in a big way. “We’re not too far off from that,” Blake said, “and it’s a great advantage for business owners because it puts them back in the driver’s seat.”