From 2007 to 2013, SME financing hit the skids while annual small business loan origination fell by 54 percent. Twenty-eight million small businesses across the U.S. carry nearly $700 billion in small dollar loans. Furthermore, consumer loans are qualified on the basis of income and credit score, the two basic metrics on which funding is executed. In contrast, SME lending is fragmented in the form of equipment loans, business acquisition loans, commercial real estate loans, invoice financing, and supplier financing. Plus, it requires lenders to evaluate a host of parameters for understanding the creditworthiness of borrowers. Brock Blake believes $1 billion is the benchmark that allows lenders to be more transparent about their volume trends.
Blake, the former CEO of Funding Universe, founded Lendio in 2006 with Trent Miskin and Levi King to make small business lending simpler. Headquartered in South Jordan, Utah, the company has raised $51 million from 11 investors in four funding rounds. Additionally, the company $20 million in October 2016 for expansion. Comcast Ventures and Stereo Capital led the Series D round offering a big vote of confidence in the company even as FinTech lending industry has grown tepid.
Lendio works with more than 75 lenders to enable its customers to compare and contrast varying loan options that include SBA, startup, equipment, commercial real estate, and more. It has facilitated more than 13,000 businesses to raise $250 million through its platform.
How Lendio Aggregates its Loans
Blake confirmed that partner-lenders’ appetite for loan volumes is increasing. Lenders are always on the lookout for creditworthy leads, which allows Lendio to be a full package solution by providing comprehensive and credible information about prospective borrowers. It has also launched a national scholarship program for small businesses and has entered into strategic partnerships with American Express, Staples, and GoDaddy. The company has also announced new partnerships with Townsquare Media and Supplier Success. These initiatives have helped the platform fund $63 million in Q3 2016 alone.
Lendio, in partnership with lenders on the platform, tailors solutions to the borrower. Innovations include flex pay products, mezzanine financing, and larger loans for commercial real estate and business credit card segments. This helps Lendio move up the curve in terms of volume, reach, and profitability. It is always more profitable to execute a $3 million loan than a $3,000 loan, Blake said.
Lendio’s Success is Dependent on Relationships
Lendio has been active on the regulatory front, spending a lot of time educating policymakers and members of Congress about the needs of SMEs and how players in the industry are innovating to help businesses create jobs and wealth. In addition to small business loans, Lendio has organized educational events for small business owners to make their businesses more lending friendly. The company is a member of Electronic Transactions Association (ETA) and has an association with Innovative Lending Platform Association (ILPA) and Coalition for Responsible Business Finance (CRBF).
One initiative supported by Lendio is ILPA’s Straightforward Metrics around Rate and Total Cost (SMART) Box, which focuses on providing transparency to small business owners through standardized pricing tools and comparisons inclusive of various total dollar cost and Annual Percentage Rate (APR) metrics. The company understands that it is a work in progress and believes it is important to incorporate feedback from SMEs and other partners.
Lendio is always working on its product and technology stack to ease the process for both borrower and lender by concentrating on matching algorithms, customer experience, and enhanced automation to increase conversion rates. Blake believes the industry was more focused on loan volume in the previous year; the current scenario has VCs focusing on unit economics and profitability. This is positive for Lendio as the company had started focusing on margins ahead of the curve and this will be reflected in its ability to keep growing without sacrificing margins.
Lendio’s platform has multiple lenders and is on a rapid growth spree. As lenders start from a small base, Lendio is not publishing data around individual lender volumes.
With focused efforts on customer experience, investment in technology, and positive unit economics, Lendio is growing over 100% year over year. Its recent funding round will enable the platform to further establish its hold as the go-to loan aggregator among small business owners. Lendio’s loans are now available in 46 of the 50 states, and the company has been stitching partnerships to grow access to both capital for borrowers and customers for lenders. The market size is huge, and Lendio is in the pole position for capturing a significant market share in a category which was all but abandoned by Wall Street.
Written with Heena Dhir.