In the dog-eat-dog business of banking, a North Carolina start-up has a plan for setting itself apart: making loans to providers of pet care.
A group of organizers filed an application with regulators in April to establish Live Oak Banking Co., which would specialize in financing veterinary practices and pet kennels.
Even though Live Oak's founders are pet lovers, "that's not why we're starting the bank," said David Lucht, its president.
"I'm a lover of the credit metrics that is demonstrated by the industry," said Mr. Lucht, the former chief credit officer at the $10.4 billion-asset FirstMerit Corp. in Akron.
Americans love their pets, and the business of taking care of them is booming.
The American Pet Products Manufacturers Association Inc. estimates that U.S. spending on pets will rise 38% this year from 2002, to $40.8 billion.
Spending on veterinary care will rise 7%, to $9.8 billion, according to the trade group, and spending on grooming and boarding will rise 7%, to $2.9 billion.
Live Oak's organizers include James "Chip" Mahan 3rd, the former chief executive officer of Cardinal Bancshares of Lexington, Ky., and a founder of the financial services software firm S1 Corp. Mr. Mahan will be Live Oak's CEO.
But the company's success is likely to hinge on its lending team, which is anchored by a group of four former BB&T Corp. lenders, each with roughly 15 years' experience making loans to the pet industry.
"They've done it for years and originated a ton of stuff, all with very good credit quality," said Todd H. Eveson, a lawyer at Gaeta & Eveson PA, the Raleigh law firm that is handling the charter application.
Many start-up banks these days are positioning themselves as niche players, and organizers view medical professionals, such as doctors, dentists, and physical therapists, as an especially lucrative market.
Live Oak is aiming to open its doors with 15 employees. Pet care would be its main focus at the outset, but Mr. Lucht said it eventually would target the franchise day care and the hotel/motel sectors.
The company would make loans through the Small Business Administration's 7(a) loan program, which provides a government guarantee on a portion of the credit.
The SBA strategy "also allows us to extend the terms so that the purchase loan is more affordable for the young veterinarian [who is] just starting out," Mr. Lucht said. The fact that veterinarians "don't default very often at all," combined with SBA guarantee, would make Live Oak's loans relatively low-risk.
Of the 350 veterinarian loans that Live Oak's lending team has originated over the past 15 years, only two have defaulted, he said.
However, because SBA loans cannot be refinanced, Live Oak's team would not be able to bring their books of business with them. Instead, Mr. Lucht said, they would head to trade shows and conferences and meet with contacts at investment banks to drum up business.
"Our guys are at a convention somewhere in the country probably twice a month," Mr. Lucht said. "It's a tough way to build a business."
Live Oak also plans to advertise in trade publications and on the Internet.
Aside from its main office in Wilmington, Live Oak will have a loan production office in Atlanta, where several of the lenders are based.
The company plans to make loans throughout the country.
Mr. Eveson said he hopes to receive approval from the North Carolina Banking Commission on July 18, and approval from the Federal Deposit Insurance Corp. shortly thereafter.
His company has already raised the $8 million of required capital from a group of less then 10 investors.
