As banks continue to lose business to online lenders that can approve and offer small-business loans in a matter of minutes, some well-funded startups have developed technology that lets banks offer similar convenience. Such partnerships are allowing banks to hold onto customers who want to apply for a loan online, rather than referring them to the likes of Lending Club or OnDeck Capital.
Mirador Financial, one of the new breed of technology vendors, announced a $7 million round of equity financing on Monday. The Portland, Ore., company said that it plans to use the cash to expand its product development team and to sell its technology to more financial institutions.
Mirador, which was founded last year, has already sold its small-business lending platform to 15 banks and credit unions, including the $1.9 billion-asset Pacific Continental Bank in Eugene, Ore.
One reason that some banks are choosing to work with firms like Mirador is that it allows them to maintain lending relationships with their small-business customers, rather than referring customers to marketplace lenders and collect a fee for doing so.
Some of those tech-enabled lenders charge much higher annual percentage rates on small-business loans than banks do, notes Trevor Dryer, Mirador's chief executive officer.
"If you're a bank that's building a relationship of trust with a small business, I'm not sure you really want to send them off and have them borrow at 40, 50, 60% APR," Dryer said. "You're paying 50% interest in a year? Regulators aren't particularly happy with it."
Mirador currently enables banks and credit unions to offer term loans to businesses, as well as some Small Business Administration loan products. The firm is looking at expanding into other areas of small-business finance, according to Dryer.
The financing round that was announced Monday was led by Core Innovation Capital, with Nyca Partners and Jump Capital also participating.
Other vendors of lending technology are pursuing somewhat different lending niches, but they also tout their ability to help banks stay on the right side of regulators.
Chicago-based Akouba Credit recently announced that it is working with the $203 million-asset Metropolitan Bank & Trust to identify potential small-business loans in and around Chicago that would be eligible for credit under the Community Reinvestment Act.
CEO Chris Rentner suggested in an interview that when banks refer customers to marketplace lenders, they may not be thinking through all of the consequences.
"By sending those leads away, they're actually hurting themselves because they're not meeting some of the regulatory requirements," he said.
San Francisco-based Insikt is marketing its technology to banks as a way to earn money, as well as regulatory credit, from loans to consumers with low credit scores. "This is CRA 2.0. This is CRA done the right way," said CEO James Gutierrez.
The technology vendors are betting that smaller banks and credit unions will turn to them in the face of an onslaught of competition from both bigger, deeper-pocketed banks and upstart lenders.
Their technology can be used to build online loan platforms, but it can also be configured to streamline the process of underwriting a borrower who walks into a branch.
Still, some small banks are not convinced that it makes more sense to partner with a technology vendor than a marketplace lender.
At the American Bankers Association's recent annual convention, Leslie Andersen, the CEO of Bank of Bennington in Nebraska, said that working with a vendor would not have made economic sense for her $84 million-asset institution, since the bank would have had to hire additional personnel. Her bank is partnering with Lending Club instead.