New Resource Bank in San Francisco is working with a fintech firm to reach underserved small-business clients.

The $349 million-asset company has been offering asset-based loans to companies with at least $1 million in annual revenue through a partnership with P2Binvestor in Denver, known as P2Bi, since late 2017.

New Resource, which agreed to sell itself to Amalgamated Bank in New York in December, is delving into an area — working with fintech — that has largely been the domain of larger financial institutions. In doing so, New Resource is taking part in an arrangement that industry observers view as unique given the bank's size.

Still, the move makes sense given the bank's tendency to serve mission-driven companies.

“This totally fits into the brand ... and could be a great source of customer acquisition for them,” said Ian Benton, a senior digital banking and payments analyst with Javelin Strategy & Research. New Resource is "looking for mission-driven companies, which is a great niche to target, especially considering they appear to be primarily operating in Northern California and Colorado.”

Banks often refer clients that lack the track record or profitability needed for a standard commercial loan to alternative lenders. In this case, New Resource provides half of the funding while P2Bi handles the technology and infrastructure needed to manage the relationship. The companies, which work frequently in the organic food sector, spent months setting up the arrangement.

P2Bi wants to work with more community banks to give lines of capital to small and midsize businesses that are not ready for traditional financing. New Resource is its first bank partner.

New Resource should be “able to grow with that business over time,” said Krista Morgan, P2Bi's founder and CEO. “I think of it as dipping a toe in the water with these businesses and building that relationship earlier."

P2Bi, which also offers direct lending, realizes that many small businesses eventually want to move away from alternative lending to a traditional bank loan, Morgan said, adding that her firm's partnerships provide a middle ground to bring clients closer to a bank.

The arrangement could be a way for banks to test the waters without fully committing to small-business lending, said David O’Connell, senior analyst at Aite Group.

New Resource, which has operations in Denver, has received nearly 38 leads for loans, creating a potential pipeline of $92 million. The bank, which has already closed five loans worth $10.5 million, is also talking to a number of other prospects, said President and CEO Vincent Siciliano, who plans to retire after the Amalgamated deal closes.

P2Bi’s infrastructure and technology lets New Resource manage and monitor the client relationship, which would be expensive and time consuming to do on its own, Siciliano said.

“It’s hard for us to lend to young, high-growth companies on a conventional basis, without tracking" the client, Siciliano said. P2Bi’s “mechanism provides that.”

Amalgamated plans to continue the relationship after it buys New Resource.

“The partnership with P2Bi is a great program that aligns with Amalgamated’s mission of helping businesses who want to make a positive impact in the world, but might not otherwise be able to obtain loans,” Stephen Marra, the $4.1 billion-asset Amalgamated's first vice president of commercial lending, said in an email.

“Small businesses often are the ones bringing innovation and new ideas to how we can make the world more just, compassionate and sustainable," Marra added. "Amalgamated wants to be able to help them do that.”

The partnership is enticing for banks looking to grow their C&I portfolios, Morgan said, adding that the small businesses interested in lines of credit from New Resource and P2Bi are not ready for traditional financing. Morgan said she sees the partnership as a way for banks to land new C&I clients and expand existing relationships.

For the partnership to work, P2Bi pools half of the funding from private investors. New Resource supplies the rest of the financing and serves as the senior lender. The companies share revenue. Because the loans combine private investor and bank financing, customers pay lower interest rates.

P2Bi is in talks with other banks about similar programs, though Morgan said she isn't ready to make any other announcements.

Small-business lending has become overly crowded, with emerging companies competing with established players such as OnDeck and Kabbage, Benton said. P2Bi’s focus could serve as a differentiator.

“I think there's definitely room for niche players,” Benton said, though there are questions about the types of niche and which distribution channels will keep costs low.

"That’s why bank partnerships make so much sense," Benton added. "It’s still up in the air for whether this is going to succeed when you have big companies such as Amazon, PayPal, Square and banks on the other side. The alternative lenders are being squeezed in the middle and the space is getting smaller.”

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