Online SMB Lending To Benefit From Regulation?

Lest the online lending landscape seem like a “Game of Thrones” episode, with bloodletting, zombie-like creatures and the ever-looming threat of winter — all may not be lost.

True, Lending Club has started a chain reaction of fear and loathing in the sector. And true, internal controls are about to get a lot more external oversight.

And yet, diversification counts. Banking all your hopes (and cash flow) on a few backers may seem a doubtful strategy in retrospect, but it has worked for a while, for some, and at times, for many. But for Bizfi, which sports a platform that blends a few different models, including aggregation, funding and a marketplace for originations, it may thrive through the storm, precisely through a multifaceted presence in alternative lending.

The company’s founder and chief executive officer, Stephen Sheinbaum, told PYMNTS in an interview that the lending model that has been most readily tapped in the alternative lending space — the balance sheet model — tends to show its flaws, and “it is history that shows you that the [credit] market will freeze,” as has indeed been shown in decades past, with Long-Term Capital Management, the Russian debt crisis and, of course, the global financial crisis.

Relying on a balance sheet model, continued the executive, has meant that many operators in the industry have not been able to develop expertise in both aggregation and funding, but that may change over the short term, as Sheinbaum said he could see marketplace lenders moving to shore up credit facilities. If the model is one where the online firm has typically had only one lender in place, it makes sense that it would try to seek out a syndicate of lenders, said Sheinbaum.

Most recently, the firm put up some numbers that showed strong demand, even in a quarter that may have been relatively rocky for peers. The company said earlier this month that it had originated more than $144 million in financing for the first quarter of this year, across more than 3,600 businesses, up 49 percent from last year. The company also said it had linked up with Western Independent Bankers, a trade association with presence among regional and community banks in the U.S., extending its platform to the association’s small business clients. As noted by Bizfi, its platform extends across more than a dozen integrated online partners, such as OnDeck, Kabbage and others, and another 30-plus nonintegrated partners.

Though the industry may be marked at the moment by a broad and tarred brush, Sheinbaum said that “the many suffer because of the actions of a few,” while noting that clear delineation of transparency and best practices will actually be a boon for the intersection between finance and technology. When it comes to regulation, he cautioned, “the decision-makers need to be patient and seasoned … Dealing with a business is different than dealing with a consumer.” By way of example, he stated that the way debt servicing is conducted and the legalities that apply (and, for example, if the debt that is being serviced is actually owned) differ between consumer and business classifications.