For the last couple of years alternative lenders have been telling anyone who will listen that U.S. banks no longer make the kind of loans that credit-hungry small businesses rely on to fuel growth.
Now, in a move that suggests banks are hearing the critique, one small bank is trying to follow the blueprint established by the Web-based upstarts.
The $700 million-asset Marlin Business Bank this week unveiled an online portal where small-business owners can apply for loans of $5,000-$100,000. The bank's website, FundingStream.com, aims to mimic what online small-business lenders such as OnDeck Capital and Kabbage are offering speedy, convenient access to cash.
Here is the pitch to small-business owners on Kabbage's website: "Get the working capital you need to grow your business in minutes!"
And here's how Funding Stream touts itself: "A Funding Stream business loan gives you the working capital you need, when you need it to help your business grow."
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The idea of extending credit to small businesses online appears to be a better fit for Marlin than it would be for many other banks its size.
Founded in 1997, the bank does not have a branch network and generates virtually all of its revenue from an equipment-finance business that has a national footprint. In that business, Marlin provides financing to restaurants, white-collar businesses and other small and midsize companies that do not have enough cash on hand to buy the pricey equipment they need to operate.
Often those same borrowers have additional credit needs that Marlin has been unable to fulfill, said Russell Walraven, vice president of marketing at the bank's Mount Laurel, N.J.-based holding company.
"For example, a restaurant may be expanding. And while they might need a new oven or a new fryer, they would also want to be able to expand their building, maybe put on a patio, maybe open a different location," he said. "And unfortunately, until very recently, we would have to say no."
Those existing customer relationships point to one reason why Marlin Business Bank believes it can compete with many of the nonbanks that have a head start in online lending. Marlin plans to cross-sell its working capital loans to its equipment-finance customers. Initially, that may allow the bank to acquire customers at a lower cost than some of the alternative lenders are paying.
Still, Marlin faces significant challenges as it seeks to compete with fast-growing nonbank lenders such as OnDeck, Lending Club and Kabbage, which announced this week that it is on the verge of surpassing $1 billion in loans funded.
The alternative lenders are built on data-driven, automated underwriting platforms, which enable fast and efficient decision-making. And they are continuing to invest in technology in order to simplify the borrowing process. On Wednesday, OnDeck rolled out a new mobile app that allows its customers to manage their accounts from Android phones.
While Marlin's Web-based platform enables potential borrowers to apply online, the bank acknowledges that its underwriting process is more old-fashioned.
"As applications come in, we do have underwriters that have to take a look at those applications. Nothing is fully automated yet. We're going to get there," Walraven said.
Alex Johnson, a senior analyst at Mercator Advisory Group, said that many traditional banks are lagging behind tech-driven online lenders when it comes to their back-end systems.
Referring to Marlin Business Bank's online loan portal, he said: "There probably will be some growing pains as they try to match the underwriting speed and sophistication that some of these alternative lenders already have."
Marlin's working capital loans carry terms of six to 24 months, and will be funded from the bank's balance sheet. Repayments will be withdrawn from borrower bank accounts on a daily basis.
Many alternative lenders have come under fire for charging extremely high interest rates to small-business borrowers, and it is unclear how Marlin's offering will compare. When asked about the cost of the bank's new working capital loans, Walraven said it is too early to say.
"The costs are going to be based on credit; they're going to be based on business measurables," Walraven said.
He added that among competitors "there's a ballpark average" around a 50% annual percentage rate, "and we think we're going to come in south of that."
Part of the message that Marlin will need to sell to business owners is the idea that banks are not their enemy.
"I think it's been difficult for banks to work with small businesses, so therefore they haven't," Walraven said.
He added that alternative lenders have filled the void, and in the process, have somewhat unfairly maligned banks as being uninterested in extending credit to small businesses.
"We're going to have to go out there and tell everyone, 'Hey, bank is not a four-letter word,'" he said.