The big banks, until very recently, seemed largely allergic to SMB lending. In the wake of the financial meltdown and increased regulations, underwriting a big loan to a big player and a small loan for a small player were equally expensive on the front end, but only one had any chance of being worth any real money on the back end. So, the big banks, more or less, abandoned the less-than-lucrative field of small business lending.
But since small business didn't stop needing liquid capital, startups and alt-lenders appeared to fill in the vacuum, and as those digital lending models began attracting customers, funding and profits, it suddenly seemed as though there might still be money to be made from SMB loans — if managed correctly.
JPMorgan Chase has recently signed on with OnDeck to create digital SMB loans for its customers. Regions Financial Corp. will partner with Fundation starting this fall, reportedly because of transparency around its lending terms (top rates max out at around 30 percent).
Not all of the bigger lenders are exactly new to this part. Wells Fargo's credit card processing unit for merchants has worked in conjunction with CAN Capital for the last five years to see businesses that were denied bank loans referred to online lenders.
“We are in discussions about ways to expand the program” with Wells and in talks with “several others,” said CAN Capital Chief Executive Daniel DeMeo. “There’s a lot more curiosity over the last six months than there had been previously.”
“Every major bank is working on this,” said John Barlow, president of Barlow Research. “This is really just the beginning of a re-engineering of the entire small business lending process.”
Not every bank is interested in working with a lending startup. Bank of America, for example, has firmly said no to online or alt-lender partnerships because of the risk of dings to its reputation that an alt-lender brings, Chief Executive Brian Moynihan has told analysts.
JPMC will integrate OnDeck's tech into an SMB checking account so as to speed up the process by which pre-screened borrowers can receive funds. Though OnDeck's tech is powering the platform, only JPMC's name is on the product.