Overregulation Threatens Small Business Lending [INTERVIEW]

  • Nancy Miller
  • July 11, 2016
  • 1

© Can Stock Photo Inc. / 5xincThe following is an email exchange with Glenn Goldman, a pioneer in alternative lending and CEO of Credibly, an online lender to small businesses. 

More regulation is likely coming to SMB online lending. How do you respond to this?
Unfortunately, there are bad actors in every industry, and I think there’s now an even greater responsibility for all of us in the lending ecosystem to keep an eye on each other.

Our concern: Overregulation could prevent small businesses from getting the capital they need. Right now, 60% to 70% of our GDP is driven by small businesses, 60% of our labor force is employed by small businesses, and the opportunity to get capital in the hands of all small businesses helps support that foundational pillar of our economy. We want to make sure that if in fact regulation does begin to ratchet up, it’s done in a balanced way, so that it doesn’t get in the way of the healthy economy that we’ve helped to create.

Are traditional lenders and fintech lenders natural enemies?
More and more, the two sides are working in tandem to serve the capital needs of small business owners, driven by their own particular strengths: They have created a complementary ecosystem. For example, banks have a lower cost of capital, a lower cost of acquisition and a greater perception of trust. Innovative lenders are speedier and make the user experience more pleasant and simpler. Plus, we can underwrite small loans more cost-effectively than banks can.

At Credibly, we view our own data science and technology functions as extensions of our partners as a de facto R&D capability, and are very comfortable sharing information and insights.

What is the primary source of funds for Credibly and how do you expect that to change over time, if at all?We began with Crestmark Bank, further expanded our financing with Alostar Bank of Commerce, an equity investment from from FlexPoint Ford, and now SunTrust Bank and AloStar.

It’s an incredibly risky strategy to rely on one single source of financing, whether that’s on-balance sheet, whole loan sales, or securitizations. You should have access to more than just one — and ideally all three. As a platform that originates assets, we avail ourselves of all three options.

Tell us about the Small Business Borrowers Bill of Rights.
We are firm believers in the six overarching tenets of the Small Business Borrowers’ Bill of Rights — they echo the fundamental principles upon which we’ve built our company.

At the same time, we need to ensure that the Bill in its entirety isn’t just inspirational, but that it is defined by actionable standards for which industry players can be held accountable. Given that its implications could help shape the future of the lending industry, we as a company decided that we needed time to review and weigh in accordingly, to ensure that it serves the best interests of the customers.

Is it ever worth it to a small business owner to borrow at 36%?
Sure, as long as there’s a net benefit to the business. If the potential return is more than the cost of the capital, then borrowing the money makes sense. If not, we don’t recommend it.

More important: “36%” might sound high if you’re comparing it to the rates of long-term bank loans only available to large businesses with established credit, but that’s a false comparison. Try this: Walk into a bank in April and tell them you need $30,000 to build a patio for your restaurant, and you need the money before Memorial Day. That’s something alternative lenders can handle, not banks.

What’s next?
At the moment, Credibly can fund businesses in as little as 24 hours. Can we get that down to 12 hours, or six hours?

This year, we expanded our online platform to make it simpler for business owners to submit funding application and monitor their funding accounts. We’ve also focused on education through original content offerings like our InCredibly blog and our Credibly Business Journal series.

In other words: How can we at Credibly and the industry at large make funding a better experience at every point of the relationship?

This interview has been edited and abridged.

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