While initially regarded with skepticism, online lending has become one of the leading finance options for small businesses that are unable to meet the rigid criteria for traditional bank loans. Still, before you enter any formal agreements with a potential lender, it’s important to carefully examine whether your business is in a position to fully benefit from the terms of the actual loan. In this episode, Jon Aidukonis and Gene Marks, along with Lendio CEO, Brock Blake, discuss several factors that small business owners need to keep in mind when navigating the online lending process.

Executive Summary

1:48—Today’s Topic: How Do I Navigate the Online Lending Process?

3:45—Online lenders serve as a quick and easy financing option for the many small businesses that might not typically qualify for a loan at a traditional bank.

4:23—By offering loans to overlooked or marginalized business owners, online lenders are actually increasing the diversity within the small business community.

6:17—To prepare for the application process, small business owners should have access to all their tax return information as well as their bank statements.

8:04—Don’t assume that every potential lender on the marketplace platform has been properly vetted. Business owners still need to research each lending institution that they plan to work with to ensure that it’s a reputable company.

9:46—Always conduct an ROI (Return On Investment) analysis on a loan prior to signing to make sure that the terms of the agreement are appropriate for your business.

12:14—While there are some questionable lenders online, most of them are quite trustworthy.

13:35—Online lenders serve a specific market that is typically overlooked by traditional banks.

14:13—Lending institutions will assess your credit score, your cash flow, and your collateral to determine how much of a risk your business poses and then, set their interest rates accordingly.

16:09—The best time to apply for a business loan is when you don’t need it.

19:57—Be prepared for potential lenders to inquire about your internal financial affairs.

21:25—Given how integrated business technology is becoming, future lending marketplaces may be able to predict exactly when their potential clients will need a loan.

23:38—Due to the pandemic, many banks are also starting to move their loan application process online too.

25:11—If your goal is to ultimately work with a bank, but your business simply isn’t ready yet, then utilizing an online lender is an ideal way to help you finance your operations until you are in a better position to apply for a traditional bank loan.



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Jon: Hello everybody, and welcome back to another episode of Small Biz Ahead, the small business podcast presented by the Hartford. This is Jon Aidukonis, I am joined by my partner, Gene Marks. How’s it going, Gene?

Gene: Doing good, Jon. It’s just occurred to me, Jon, for you guys, seeing how the sausage is made, we are recording this whole series of podcasts. We’re recording throughout the day. I haven’t changed my shirt the entire day. I don’t think Jon, you have either, right? For all of you fans who are binging this series, you’re watching every episode, you might’ve realized that these guys are dressed the same every day. I just want to assure our audience that I do shower on a regular basis and change my clothes. Okay?

Jon: It’s true. I think it gets a little bit more interesting the more content’s become a little bit digital and social. You get to see behind it a little bit. I did consider, should I bring a different shirt? Should I move different backgrounds? Should I make it visually interesting? But, we are doing this all together so one, I think it helps with the train of thought, two, we can talk about what we just learned in the next one.

If you’ve been watching, you know we’re here for money week talking about a whole bunch of different ways that you can find different access to capital and cash through small business. Whether that’s a startup and you’re looking at a loan from the SBA or a traditional bank loan, maybe you are someone who has large scale clients and you’re paid on longer terms. You’re considering factoring, or you want to ask your friends or family for some cash. We talked about it all. This episode specifically, is going to be about online lending and when to think about an online marketplace. So, we are joined by a repeat guest of ours, Brock Blake. He is the founder and CEO of Lendio, and he is going to talk to us about why, when and where you might choose to work with an online lender. Brock welcome back to the show.

Brock: Thanks, Jon. Appreciate you having me, and Gene I’ve been watching all these episodes. It looks like you’re wearing the same shirt in every single one.

Gene: Honestly, do you notice I’m starting to grow, I have a growth on my face as well, and I’m getting all bedraggled-looking? Yeah, thanks for pointing that out Brock. Really appreciate that.

Brock: You’re welcome.

Gene: Yeah. Appreciate it.

Jon: Awesome. Brock, Gene, nice to have you both here. Brock, thank you for spending some time with us today.

Brock: Yeah, my pleasure.

Jon: We’re excited to dive right in, and maybe just for folks who listening for the first time or who didn’t catch our last episode, can you tell us a little bit about yourself, a little bit about Lendio and what you do there?

Brock: Yeah, Lendio is the largest marketplace in the United States for business loans. If you’re a business owner and you need capital, we’ve aggregated about a hundred lending institutions across the country from banks, credit unions, FinTech lenders, non-bank lenders, onto one platform and make it easy for that business owner to go apply for a loan, one place. Get access to many loan options that they can comparison shop the rate, the term, the payment amount and choose the product that is the best fit for them. We’ve funded, I think it’s now around 400,000 small businesses.

Jon: Wow.

Brock: About 13 billion dollars across the U.S. We call it fueling the American dream. We’re very, very passionate about helping these business owners get access to capital and grow their business.

Jon: That’s awesome. Those are some staggering numbers, that’s grown a lot, I feel like in the past couple years, huh?

Brock: Yes, it has grown a lot. Included in those numbers are a couple hundred thousand PPP loans that we helped business owners secure during the pandemic, which was an amazing, amazing experience. Took about 10 years off my life, the amount of stress that it caused, but it was incredibly meaningful to be able to make such an impact.

Jon: Awesome. That’s good to hear. Maybe we start it simply, why might someone think about pursuing financing through an online lender? You talked a little bit about it’s a lot of folks there, you can comparison shop, it’s a single application. Are there certain kinds of businesses or reasons why an owner might want to lean into to that path first?

Brock: Yeah, I think online lending, the true benefit is the ease and the convenience of being able to apply for loan and get access to capital very quickly. That’s not the only benefit, but that’s one that most people think of that comes to mind right away. The other thing that I love about online lenders, compared to some of the bank lending that is out there is, I think it gives access to a wider breadth of small business owners. I don’t want to talk down on banks because we have lenders that are banks on our platform or banks that are lenders on our platform as well. But, to be able to look at some of the underserved, small businesses or minority-owned businesses or women-owned businesses, or other things like that. Or businesses that are younger, as far as their maturity, they’ve maybe only been six months of business or a year in business. The profile of a bank customer or getting a loan through a bank, is usually two to three years at a minimum in business, really healthy revenue, positive cash flow. Very high credit score, usually have to have collateral.

If you don’t meet the criteria of every single one of those items, which is very frequent, maybe you only have two of those items. Then it may be a challenge when you go to your bank and you apply for a loan and you may get declined. Online lenders opens up to a whole new universe of small businesses that maybe didn’t have access to capital previously through traditional banks.

Jon: That’s an interesting point, because I think especially in business, it’s tricky to start to understand what are the things that make you a good candidate for a loan? Experience, so much oftentimes, is the thing. Especially if you’re in a newer formed business or in a category where you’re not going to have 10 years of receipts to show back, it’s an interesting way to give access and to find lenders who might be good ones to work with.

Definitely an avenue I think that folks are interested in pursuing and learning more about. When you think about how to prepare for that application, because you are starting once and distributing it to many, what are some things that businesses might want to do to get their affairs in order before they jump in and start shopping around right away?

Brock: Yeah, the process of the application is really simple. It’s 10 to 15 minutes, or it could be five minutes if you have everything ready to go through the process. When you sign up to Lendio, we do a soft pull on your credits, we pull down your credit score and your credit data, we leverage that. We go out, we sync your bank data. We’re looking at three to six months of bank transaction history, whether you upload your bank payments or whether we use technology to go pull that. We look at tax return or any Google data that shows whether you’re online and some other things like that. We use all that information and we have technology algorithms that say, “Okay, out of these hundred banks and the profile we are looking at of that business owner, which lender or group of lenders are most likely to be able to offer a loan?”

We send that application off to let’s call it, four or five or six lenders. They’ll underwrite it, and then they’ll send back to us an offer or a decline. Then we take those, let’s say, four out of the six, give us an offer. We’ll go back to the business owner and say, “Okay, here are your four options, A, B, C, D.” They can comparison shop the rate and the term and all the details of that loan, and choose the loan product that is the best fit for them.

Having access to your tax return data handy and if you want to upload bank statements, having access to that. Those are the two primary things that we’re going to look at and to make it an easy process.

Jon: Gene, I’m sure that you have a ton of thoughts and questions here too.

Gene: I do, Brock, you mentioned at the beginning of the conversation how loans come from a whole bunch of different sources. Credit unions, CDFIs, right?

Brock: Yup.

Gene: Community development, financial institution, the SBA, online lenders, banks, as a business, do I care where the money is coming from?

Brock: Honestly, most businesses don’t care where the money’s coming from.

Gene: Should we?

Brock: They should, they should. I think one of the things about Lendio is that we care a lot about the reputation we’re delivering, we’re they advocate for the business owner. We’re not going to add a lender onto our platform that we haven’t vetted, we want to make sure that they provide a great customer experience after they get the loan. There’s some horror stories out there, right?

Gene: Right.

Brock: I think doing your research on the lending institution, even if you haven’t heard of them, go look at their online reviews and see what experience they’ve had with other customers. Do they post credibility things around? Do they post a phone number? Do they post their address? Do they post the team, the management team on the website, or are they hiding behind certain things? So, there are some things like that I think are best practices for a business owner to determine, is the right lending institution that’s going to take good care of me? Whether they’re really well known, like an American Express or someone like that, or Bank of America, or maybe they’re lesser known. Some of the lesser-knowns, they’re coming up, but they do an incredible job taking care of their customers.

Gene: If I’m evaluating a potential lender, let’s say Lendio is recommending two or three different sources, let’s say the terms of the deal are relatively the same. You worked with all these guys for years, you know what I mean? So, what would be your advice? What would be either red flags that I should be aware of for a potential relationship that might not be good for my business or on the other side, what would be things I should be looking for, for the right lender for my business?

Brock: There’s evaluation of lenders, but then there’s just evaluation of the loan product. Is it the best fit for the business owner? Evaluation of lenders, I think I talked about that a little bit. You can compare and contrast certain lenders, but in my opinion, it’s most important for the business owner when they’re thinking about getting a loan to make sure you do the ROI analysis on a loan. Meaning, sometimes people talk that there’s low rate loans, there’s medium rate loans, there’s high rate loans. High rate, people think are automatically bad and low rate, they think automatically is good. That’s not really the case. A lot of times it can be a cost of capital for a high rate loan could be lower because it’s shorter duration and gets you what you need, than doing a 10-year low interest rate loan.

Gene: Right.

Brock: The other thing is that an ROI case, if I’m a business owner, I want to know…venture capital is really expensive money. I’ve raised 80 million dollars of venture capital, and I’m supposed to return 5-10x the money that I have. That’s expensive.

Gene: That’s a high rate of interest.

Brock: That’s a high rate interest. But, the ROI case on taking that money is really high. You look at some business owners and you say, “If I could get this loan and I can increase my revenue 10 grand a month, and I could pay that off in six months.” It may be the best money you’ve ever taken, because you’ve really thought through the ROI case.

Gene: Right.

Brock: I think it’s more about, okay, let’s look at that loan and let’s apply it to my situation. Can this be good for me, or is it not? You don’t want to get in that trap of going and borrowing higher rate money to pay off lower rate money, because you didn’t do that ROI analysis early. That’s the death spiral that business owners don’t want to get themselves into.

Gene: Lendio is not an online lender, you’re a marketplace?

Brock: Right.

Gene: You facilitate this stuff. I have to imagine it annoys you sometimes when people throw you into the whole bucket of online lenders, you know what I mean? There’s all these online lenders, including Lendio. I imagine there are times you’re like, “No guys, we’re not a lender, we’re a marketplace for these lenders.” The online lending itself has always had this stigma to it. This is a 20-plus billion dollar industry. This is growing. There are businesses of it, it’s a legit industry, but people are like, “There are high rates of interest or there are sharks out there, or people take advantage or whatever.” What do you think are some of the misconceptions about the whole online lending marketplace that you think should be cleared up for a business before they dive in?

Brock: How much time do we have?

Gene: Yeah. Right, right.

Brock: Let me hit on a couple things. The first thing is, there are bad actors out there, I want to acknowledge that. Again, some of the things we talked about earlier, looking at the legitimacy, the reviews of lenders, those bad actors give a really bad name for some incredibly reputable top service online lenders.

Gene: Right.

Brock: That’s number one, number two is, the online lenders are really trying to fill a gap. You have banks that are only going to lend to the highest credit business owner. But, what about everyone else?

Gene: Right.

Brock: There’s a very small percentage of businesses that are going to meet the criteria of a traditional banker credit union. I think it’s capitalism that online lenders are going to say, if you’re comparing them to the bank, yeah they’re lending to people that are riskier than a bank would because those business owners went to the bank and they got declined. So, what’s the opportunity?

The third thing is, I think putting yourself in the shoes of a lending institution. I don’t care if you’re a bank or an online lender, or you’re a CDFI, or who you are. They’re really trying to price risk. I talk to business owners and I think about what I call the three C’s. You have your credit score, you have your cash flow, and you have collateral. Now, if you have great credit, really strong cash flow and really good collateral, you represent low risk and so you’re going to have a low rate. Let’s say you only have two of those three, you have collateral and you have good credit, but no cashflow.

Gene: Right.

Brock: Now you represent medium risk and so guess what? Your rate, it’s just economics, your rate is going to be a medium rate.

Gene: Right.

Brock: Let’s say you only have one of those three, let’s say you only have cashflow but you have low credit score, you have no collateral. Now you represent higher risk and so your rate is going to continue to go up as what type of risk you represent. I think it’s helpful for a business owner to take a step back and do a self-assessment and say, “If I were a lender lending to me, and I were looking at my credit, my cash flow, and my collateral, where do I fit?” Then, you can manage expectations and you say, okay, it’s an 18% rate. I wish it was a 5% rate, but I’m not in the 5% category today. That’s just some self-awareness. I think it’s a valuable aspect to think about.

Gene: You’re making this assumption that we, as business owners are reasonable people. It is a stretch sometimes. We’re always thinking, we’re being fleeced and that’s not the case. It’s just the other people, you’re right, they’re managing their risk. Brock other questions for you, I’m jumping around, but I’m just curious to get your thoughts on it. We’re having this conversation now in early to mid-November, inflation has been, as you know, creeping up significantly.

Brock: Yep.

Gene: With the expectation, that’s going to continue. I was traveling this past week, two weeks actually, at various conferences. When we talk about inflation and the economy, there is not a single business owner in the room in front of me that does not expect interest rates to be going up sometime in the near future.

It’s going to be inevitable that the Fed’s going to have to start jumping in at some point to control. I was just curious, people will be viewing this, Jon, I guess people will be viewing this sometime in December or whatever. It’s going to be fairly close to when we’re talking so it’s relevant. What are your thoughts on interest rates? Somebody who’s in this lending marketplace, do you feel like going to business owners and saying, “If you need capital, you better lock it in sooner rather than later, because rates are going up.” Give us your thoughts on where you think interest rates are going, or what type of advice you would be giving to business owners looking for financing now.

Brock: Candidly, I think that the business lending environment is a little bit of an arm’s length from the moving interest rate. It’s not like mortgage and it’s not like auto.

Gene: Okay.

Brock: Fed rate changes, and your mortgage changes immediately, or your auto rate changes immediately. In business lending, it’s one step removed and it’s a little bit insulated. My point is, I encourage business owners the best time to get capital is when you don’t need it.

Gene: Great advice.

Brock: Again, we’re emotional people and if we don’t need it, we think why would I go and spend any time trying to get it? But, if you have a cyclical business and you know you’re going to your down season, before you get to your down season you should be applying for a loan and preparing for that rainy day.

I don’t get too caught up, just because I see it.

Gene: Sure.

Brock: The rates don’t fluctuate as much as consumers. I get. I focus less on that and more on, what are the needs of that business owner and when do you need it? Can you prepare and get the capital? The worst time, and this happens so often, is all of a sudden it’s Wednesday and I have payroll on Friday and I’m looking on my bank account. I’m like, I’m not going to make payroll.

Gene: That’s the worst time.

Brock: I need money right now. They come in and they apply and it’s like, “Okay, when do you need the capital?”

“I need it tomorrow, because otherwise I’m not going to hit payroll on Friday.” That is the worst time. I know I’m skirting your question a little bit around rates, but just because we track it pretty closely and it’s not directly tied as much as mortgage and consumer.

Gene: It’s a really important point you’re making, because you just said just a few minutes ago that lenders make the decision based on risk. Yeah, there is a cost to capital to them if it just rates go up, it’s going to cost them a little more. But, the lion share of their rate decisions are really based on the risk of the business they’re lending to, not what the Fed is doing and not what prevailing interest rates are.

Brock: Exactly. If you want the best rate, don’t worry about what the Fed’s doing, go when you don’t need it.

Gene: Yeah.

Brock: That’s where you’re going to get the lowest cost of capital.

Gene: Yeah, or take care of your own business and make sure that you’re as least a risk as possible, so somebody wants to lend you money. It’s important. Also, you mentioned earlier about the type of due diligence that you do for businesses when they go through the application process. You’re looking in their bank history, you’re looking at their tax returns, you’re looking at their credit history. Do you get pushback from that? Listen, we run businesses, we hate it when people ask about our internal financial affairs. You’re like, how am I going to lend money to you, unless I know what your business is? Can I just share some of the information with you? You must get some pushback on that?

Brock: Yeah, we get some pushback, a little bit, but I think it’s fairly well understood that if you’re seeking a loan, there’s some information that you have to provide. You can go and kick tires and say, “I just want to know if I’m going to be in the ballpark, or what my rate’s going to be or other things like that.” We can do some of that without getting all the information, but for the most part, if you want a real offer and know exactly where you stand. You’re going to be able to get a view of three to five lenders that are presenting you rates and terms that you can choose from, and different loan sizes. There’s no cost to that business owner. There’s a little bit of pushback, but not much, honestly. I think it’s fairly well accepted these days that I need to provide some information for them to do some analysis.

Gene: Hey Jon, I’m going to turn it back to you in a minute, but just one final question, Brock. Where do you see Lendio going as a marketplace for online loans, all of that’s happening right now in 2021. If you project yourself five or 10 years in the future, besides you going to watch your son quarterback for the Eagles at that time.

Brock: Let’s go.

Gene: How do you see the world of financing for small companies going, more digital crypto, more vehicles and instruments to finance your business off of? I’m curious what you thought about the future for the company.

Brock: Yeah. I’d answer that question in two ways. There’s two participants here, there’s the business owner and there’s the lender. Let’s talk about the business owner for a second. In a few years, the business owner will in the palm of their hand, their phone, they will be able to have what I call, an always-on application. Meaning, I don’t want the business owner to ever have to go and apply for a loan again. If we have access to their bank data and it’s open banking where they give access to it, and you have access to some of their invoice data or whatever. Then, what happens is, we can predict when they’re going to need a loan and recommend it before they ever think about applying for a loan. Just alert them on their phone, they’re getting cash alerts going “You have payroll coming up, you have this bill that you haven’t collected on, or you’re approved for $50,000, click here to take it.”

It’s just ease of running your business because it’s just right there, you have access to it all the time. That’s certainly coming, we’re very close to doing that right now. We have 50,000 business owners that are using our, what we call Sunrise, which is our cash flow technology that syncs with their bank account, works with our invoice tools. Now we can help them get the best capital, the lowest rate, at the best time, when they don’t have to think about it. That’s number one.

The second thing I think about is on the lender side, and specifically with banks of credit unions. You have about 5,000 banks and credit unions in the country that do business loans. The majority of those require you to go into their branch, fill out a stack of papers this thick, and then wait six or eight weeks for them to get back to you on whether you’re approved for a loan or not.

Gene: Literally, still in 2021. That is absolutely, the environment. Yup.

Brock: Yes.

Gene: Yup. Yup.

Brock: What’s happened is they’ve had this pandemic where banks realize that business owners were, first of all, they were quarantined. They couldn’t go into the branch, and now they never want to go into the branch. So, banks are really starting to embrace and ask for technology where they could have bankofabc.com. I’m Gene Marks, I go and apply and I can get approved instantly at that bank. The experience is going to be much more like online lending, but with bank rates. We have a lot of technology that’s able to do that, and we have a lot of banks we work with that are begging for it. So, there’s opportunity to really make this experience of lending much more frictionless, or take out a bunch of the friction of the experience for both sides and help get access to capital much easier.

Gene: That’s great. That’s great. Brock, that’s great. Jon, any final questions from you? You want to pick it up?

Jon: Yeah, I think my only question really is when folks are thinking about using an online marketplace, you’re going to get access to different types of lenders. If you’re not one of the most traditionally credit-worthy businesses or people, and I think it’s interesting that we even still use that term, especially so much on your under credit score. I look at it like a debt score because you can’t really get it unless you take on debt.

As we’re thinking about ways to maybe move that tier, so if you’re trying to get from high risk to medium risk, or medium risk to low risk, do you think of an online marketplace as a good way to find alternative lenders so you can start to build up either your cashflow or your credit score? If you want to be in a position where you are more comfortable long-term working with a traditional bank, you’re doing the work to get there.

Brock: No question. I’m so glad you brought that up because a lot of times a business owner, I might be a high risk business owner today. If I can be methodical and disciplined and say, “Okay, I’m going to take this loan and I’m going to pay it down.” First thing that’s going to happen, is the lender that gave you that loan is going to see that you’re credit worthy and they’re going to be motivated to give you a larger loan of renewal, for a larger loan at a lower rate. So, the next loan you take, let’s say you take another loan from them and it’s at a larger loan, lower rate. You’ve disciplined and you pay that down. Now, other lenders, either the same lender or other lenders are now going to see, wow, they have a track record, and they’re going to give you a larger loan at a lower rate.

You’re just going to keep earning your way into that larger loan lower risk category. I highly recommend, you don’t want business owners to get into trouble and into bad spots. Again, that’s all about that ROI decision and that’s critical. If there’s ROI there and there’s opportunity to do that, now you’re going to put yourself in a great position where you have the access to lower rates, larger loans to help your business work through those cash flow needs.

Jon: Yeah, it’s interesting too, because just even your comment around interest, and Gene, if the inflation rumors hold up and these loans move at a different pace. When you think about maybe purchasing property or collateral for your business, to think about that, that might be an alternative way to think about how you start to add into that asset bank too.

Awesome, Brock it’s been a great conversation and we want to thank you again for joining us. I think that this is an interesting topic for a lot of folks and gave some good overview on how and when to think of an online marketplace, and what the role is. You’re looking at different access to different types of funding for yourself and your business. Thanks very much for joining us again.

Brock: Yeah. I always love spending time with both of you, so thanks for having me.

Gene: Yeah, I love talking with you Brock, so thank you very much. I appreciate it, have a great weekend.

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