Like many entrepreneurs, Lendio CEO Brock Blake knows from experience how hard small businesses have to work to secure appropriate financing to grow their company.
“When you’re an entrepreneur, one of the jobs of a CEO is to make sure you have the financial resources to move the company forward. They can come in many different ways and we probably touched every single one of them, angel capital, venture capital money from friends and family, business credit cards, lines of credit, flexible payment arrangement loans and everything in between.”
Mr. Blake learned this while still in college where he started a couple of different businesses and experienced the struggles of fellow business owners with obtaining financing. That led him to develop companies which would make this experience less stressful for entrepreneurs.
It took a while to get it right.
“The first thing we were trying to do was to help business owners get financing through angel and venture capitalists.” Mr. Blake recalled. “We were connecting entrepreneurs to angels through a kind of a dating website online and through kind of a speed dating service in various locales through out the U.S. mostly. We found out pretty quickly that only about one half of one percent of business owners were going to get capital through an angel investor or venture capitalist. It is tough to build a business when you were turning away 99.5% of your customers.”
That led Mr. Blake and his partners to create Lendio, a company which helps match small business owners with the most suitable loan products out of a growing number of options.
In a sense Lendio is like a personal shopper who, instead of groceries and home decor, brings different loan products to the office. They sought out partnerships with what Mr. Blake estimates is 100 lenders who offer many different types of loans including merchant cash advances, equipment loans, accounts receivable or purchase order loans, lines of credit, and real estate loans… about every possible kind of loan you can think of,” Mr. Blake said.
Mr. Blake described the typical Lendio customer.
“The business owner is usually a restaurant owner, dry cleaner, landscaper, running some service-based business. They’re very busy with sales and marketing, inventory, hiring and firing, and payroll. They don’t have time to become an expert in all the types of loans that are out there.”
“That business owner will usually go to their community bank. They’ve worked with that bank, got a relationship there and they figure if anyone can get them a loan it will be their bank. Unfortunately when they get there they find their bank only offers a very small sliver of the loans that are out there, and 90-95% of the time that business owner walks away empty handed because they are just not a good fit for what the bank is looking to lend on.”
“We’re a one stop shop. We take your business, match it up against the various types of loan products and identify the best three, four or five loan options that are the best fit for you.”
There are several steps a business owner can take to maximize their chances of obtaining a loan, Mr. Blake advises. Personal credit scores are especially important for new companies who have yet to develop an established track record. Keep it up to date, monitor it and pay your bills on time.
Many lenders will determine the health of your business by looking at cash inflows and outflows, especially if you have a low credit score.
“If you have a low credit score then the cash flow of your business is going to need to be really solid,” Mr. Blake said.
Other loans are more collateral or asset based. They look at your equity and collateral. If you are looking to add equipment for example, you can make the choice to either buy or lease. Lendio looks at the equipment value and your credit score in combination.
Mr. Blake said they also seek to validate such third party data as credit score, and bank information which is difficult to manipulate.
Many new businesses are information-based, and their loan requirements have to be addressed in a different way, Mr. Blake said.
“Credit card statements are not an option and you won’t be a fit for a merchant cash advance product. Bank statements and tax returns could be relevant depending on the volume. We would look at your revenue and profitability, interim financial statements, and your credit score.”
The many different types of both businesses and loan products caused Lendio to develop detailed algorithms which constantly get updated as Lendio works with more companies, Mr. Blake said.
“We’re continually looking to improve our API’s. We’re analyzing the data on a daily basis.”
“We can get smarter as we go along. If a business similar to a previous one comes in we can be more predictive about whether or not they’re going to get approved for a loan.”
The application process takes a few minutes, Mr. Blake said.
“There are eight to 10 questions. We’ll tell you right away which loan products you are a candidate for, the likelihood of which you’re going to get approved and which ones you are not a good fit for.”
Mr. Blake said 99.5% of people walk away empty-handed from their banks because they do not fit a narrow definition of suitability. If that many businesses are taking such a futile step, it is because they do not know about better options. How does Lendio compete with an entrenched industry?
“We approach it through a lot of partnerships,” Mr. Blake said. “Sometime we partner directly with the bank. The bank does not want to lose that customer. They don’t want to send them out on the street for the chance they might lose that customer to another bank. We go to the banks and tell them instead of saying no, tell them you have a partner that can help you and they refer them to us.”
“We also partner with brands like Legal Zoom, Dunn and Bradstreet, Experian and UPS Stores. All of these already work with business owners.”
How will Lendio be affected by interest rate hikes?
“What has happened since 2008 is banks are really moving upstream,” Mr. Blake explained. “They’re focusing on loans larger than $250,000 and $1 million. It costs them the same amount of money to underwrite a $100,000 loan as it does a $1 million loan, yet the profitability is greater and the risk is so much lower on a million dollar loan. That has left a big funding gap that has been filled by all of these innovative lenders. As underwriting costs lessen and players enter they are seeing increased competition, which is driving down rates.”