Bridging the Gap Between Banks and Online Lenders

I recently participated on a panel with several bankers during the PayNet event in Chicago, so this article in American Banker about banks needing a strategy around small business lending was especially interesting to me. Its author, Andy Peters, brings up a good point that has also been discussed around our office for years: Where is the bridge in the gap between banks and small business lenders like IOU Financial?

Bankers, of course, feel as though they are lending to many or most of the qualified candidates that come through their doors. But the reality is that many of those candidates don’t even make it halfway. Take the example of a small retail boutique owner who needs a loan but has little to offer in assets to secure it. Say this owner goes to her local bank and applies for a $20,000 loan. The odds are that she won’t get a loan approval, but will instead walk away with a credit card application.

From a bank’s perspective, loans of this size simply are not profitable. The cost and manpower required to process them don’t really move the needle for the bank. In contrast, however, IOU Financial can process thousands of applications a month by leveraging our technology over traditional manpower, which is exactly why we can extend services to small business owners needing capital to grow and succeed.

As it relates to small business owners seeking loans, community banks in particular should be thinking, “what happens to our relationship with this candidate if we don’t approve the loan?” and “where will the small business deposit the money it borrows?” For banks that want to retain these local clients (and reap the related benefits), there is obviously a lot at stake here.

The key is figuring out how traditional banks and small business lenders can best coexist to create the most optimal long term solution for the small business owner, while still meeting their own unique objectives. As the article suggests, finding this solution can open up new opportunities for virtually everyone involved.