SBA Loans Go Online: A Q&A With SmartBiz

A while back, a merchant deBanked interviewed told us they had obtained what sounded like impossibly good terms from an online lender not known for low rates. When I requested a fact check of it, we learned that the online lender had actually referred the borrower to SmartBiz and that SmartBiz had secured an SBA loan for them. It was so seamless that the borrower had hardly noticed.

Curious, I caught up with Sean O’Malley, president and co-founder of SmartBiz last month at Money2020. Below is a modified excerpt of our conversation:

deBanked: [tells the above story about the merchant who got an SBA loan] – So you actually have other alternative lenders and online lenders going through you too. What is really the biggest channel that you tap into to get small business owners to you? Is it other online lenders or do you go direct to merchants?

O’Malley: Well, there are three different areas where customers come to us. The first is through our marketing efforts. We have our own online presence and marketing initiatives that go on, where small business owners are interested in the SBA loan product. The second area lies in our strategic relationships. These are partnerships with companies like Sam’s Club where we’re actually on their lending center; we have been doing that for a number of years. Another channel would be partnerships with companies like Fundera who bring customers to us through their online channels.

deBanked: How about like Lendio?

O’Malley: Yes. We’ve built a relationship with them over the years. Lastly, the third area is the independent financial consultant channel, like our partnerships with accountants.

deBanked: Okay. Didn’t SmartBiz recently celebrate a major milestone?

O’Malley: Yes! We recently passed the $500 million threshold of originated capital on the platform.

deBanked: All SBA loans?

O’Malley: Correct, all the originated capital is a result from SBA 7(a) loans. Today, we have six bank partners on our platform who are doing SBA loan origination. It’s all been facilitated through our platform. There are really four major components to what we do. The first part is we provide an online presence and origination solution for small businesses. They come through our technology solution and then they go through an application process where we’re able to pre-qualify them. So, that’s the first piece. The second piece is really the technology platform around packaging of the loan.

deBanked: What do you mean by packaging?

O’Malley: After a business pre-qualifies, there are still documents that need to be captured and some of the specific analysis also needs to be done. A large piece of that is automated through our platform. Some of it does require sort of a white glove experience for small business. We provide that as well. Then the third piece is the bank’s underwriting platform, where we digitize the bank’s underwriting and provide them with an underwriting platform that they license from us. Leaving us with the fourth part, the marketplace.

deBanked: Can you explain the fourth piece, marketplace?

O’Malley: The core of what we do is we connect small business owners with banks. And the interesting part of that is that because we’re the marketplace, we’re able to say yes more to the small business than any single bank because they all have their own different credit boxes. In effect, we’re able to get more customers approved because we’re able to fit more use cases for that small business owner. If you combine all these, the ultimate value prop is that we’ve reduced the time to originate a loan. It traditionally takes about 120 days for a bank to originate an SBA loan. We’ve reduced that to as little as seven days. And on the bank side, we’ve reduced their costs up to 90%. As a result, we’ve made these loans more profitable for banks. And they’re then more willing to originate as part of their standard business. Whereas you know, in the small business space, banks have not been super eager to be making smaller sized loans because it costs as much for them to originate that type of loan as it does for them to originate a $5 million loan. So, we’ve made it super efficient.

deBanked: So you’re kind of filtering out applicants on your own that they would normally have to deal with.

O’Malley: That’s right. Our platform allows us to filter out all the applications and only feed a bank the deals that they can do. When we provide a deal to a bank, they’re funding it anywhere between 90-95 percent of the time. They’re funding the deals that come from us because we have the knowledge of how the bank looks at their deals.

deBanked: Is there a world in which you move outside of SBA loans and potentially offer other types of bank loans or maybe even non-bank loans or facilitate them? Not necessarily make them, but facilitate them?

O’Malley: We recently just launched a conventional bank loan. So, yes, we are expanding on our product line, and we did this as a result of really looking at that type of product and filling a gap in the marketplace as well. We’re trying to help the customers out and support their needs.

deBanked: Are you noticing a trend with maybe borrowers applying for loans on like a mobile phone? I mean, any loan is a pretty big commitment, right? They go online and apply for $5,000, you know what I mean, for a personal expense or whatever and that’s not such a huge deal because it’s a small loan. I think an SBA loan is a much bigger commitment, you know, it’s long term. Are you seeing borrowers apply for the loans you offer from a mobile device?

O’Malley: About a quarter of our small businesses start the applications over a mobile device. And they are able to get pre-qualified through a mobile device. That said, the majority of borrowers still want to talk to someone. There are still a lot of traditional relation-based elements to a small business lender. When somebody is taking out a couple hundred thousand dollars, like you said, there needs to be some white glove experience for that. And it can’t just be 100% automated. In fact, small businesses a lot of times don’t want 100% automation.

deBanked: Because it’s such a big commitment.

O’Malley: That’s right. And that’s where the market is today. In the future, we look to certainly automate as much as possible, but we hyper-target where we interact with the customer so that we provide the most unique customer-centric solution so that they feel comfortable about the process. If you look at our TrustPilot customer reviews that we use on our site, you will note that people really speak very highly about their experience. We’re super proud of that because we’ve been able to match up technology with people in the right way so that we can hyper-target where human interaction is needed to make sure that the customer feels at ease with the process. We’ve been able to become the trusted source for them getting the loan that they’re looking for.

deBanked: Do you think in the future borrowers will apply for SBA loans entirely online? Will there be an age where they’re not necessarily going to the bank to meet somebody to talk about an SBA loan? Do you think it’s all going to kind of become like an online digitized process or will it always be a layer of I wanna go and sit and talk with somebody in the bank office?

O’Malley: Well, we’re proving small businesses want to do it primarily online. In fact, you know, the point too is that if you just consider the small dollar amount category, we are now the largest provider of SBA loans in the country for loans under $350,000.

deBanked: Anything else I should know about SmartBiz?

O’Malley: We really seek to be an advocate for small businesses. We have gone beyond SBA in supporting our customers with the more conventional product, but we’re always trying to get businesses into SBA loans because it’s the best product out there. And so, our focus is always first and foremost trying to get our businesses SBA loans if at all possible. And it appears to be working. Recently, we were named as one of the fastest growing companies in the Bay area. We’re looking at certainly scaling this solution with as many small businesses as possible.