Online lending to small businesses is booming, but community banks have been slow to respond.
Bankers have a difficult choice: concede business to a new wave of startups, create their own online platform from scratch or form partnerships with outside technology firms.
Eastern Bank in Boston, the nation's largest mutually owned thrift, opted for a hybrid plan that involves in-house projects and outsourcing. It uses social media to solicit loan applications while working with Lendio, a Utah tech firm that matches banks with applicants.
The decision to go online made sense for the $8.5 billion-asset thrift, given its heavy involvement in the U.S. Small Business Administration's 7(a) program. During the SBA's fiscal year that ended Sept. 30, Eastern approved 405 loans, valued at $23.7 million, under the 7(a) program.
Online lending was among the many topics that came up in a recent discussion with Joseph Bator, Eastern's director of business banking. Here is an edited excerpt:
What is Eastern Bank doing in the area of online lending to small business?
Joseph Bator: We're actually doing a couple of things. We have partnered with Lendio and we think they're a pretty good source for leads. They do a good job of pre-screening when the requests come in. We have given them set criteria that we use and they will send us the lead and we'll work on it.
We have been able to close business with probably 30% to 40% of the leads that they have given us.
In addition to that, we are very active on Facebook, Twitter and our website, easternbank.com. Consumers can find applications for loans there and submit email directly to an email box that comes to me and one other person. We track down leads that way as well.
Why partner with Lendio?
One reason we partnered with Lendio is because their leads are pre-screened. We have had some success with people just finding us, through Facebook or Twitter or our website. But more times than not, those are leads to people we can't help, or they are at too early a stage in the development of their business. We partnered with Lendio about a year-and-a-half ago and we have been satisfied with it since. It's just another channel.
What are the criteria that you give Lendio for loan applications?
It's a number of things. One is geographic locations that we would consider leads from. We are not interested in making a loan to a Texas company. It could be a great company, but it's out of our footprint. We also have credit-scoring minimums. And if a business has filed for bankruptcy, we won't take a lead from them.
What geographic areas would you consider for these types of loans?
It's safe to say we would consider eastern Massachusetts, southern New Hampshire, southern Maine and northern Rhode Island. We wouldn't consider other areas. We probably would be unable to help someone in upstate New York, for example.
Are you making any other types of loans through online channels?
Not consumer. It also excludes large business loans. The average lead we get from Lendio is under $500,000. Once you get larger than that, my guess is that you are not Googling small business loans.
We did have one loan of around $650,000. That's the largest [online] loan that we have done so far. The [interest] rates and terms are 100% the same as for someone who walked into an Eastern Bank branch.
Are you considering partnerships with other online lending companies?
We are not looking at any other lenders right now. We're happy with what we have and we're always looking internally for opportunities to expand our reach for consumers.
We just recently opened a chat feature on our website. [Online users] can connect into our chat line and speak to an Eastern Bank representative. But that's not directly for making small-business loans.