Lenders usually move on to the next applicant after turning down small-business loan applications, but that may change soon.
Operators of online marketplaces are developing services to let lenders recycle their rejected small-business loan applications and take a cut of the profit when applicants find a taker.
LiveCapital, of San Mateo, Calif., is one of a number of Internet companies that are about to offer or are thinking about offering such reject-shopping services. If another institution on the network accepts the application and closes the loan, the one that had passed on it will get a cut of LiveCapitals fee.
LiveCapitals program is slated to become available in mid-October, with Hibernia Bank as its first user.
Primestreet.com, of Boston, plans to start testing a similar service in the next seven days.
Bob Kottler, executive vice president for retail and small-business banking at New Orleans-based Hibernia, said recycling is another way to take care of businesses and at the same time make some fee income.
But there is the danger of giving business away.
Weve got to be careful when sending people into the marketplace that we dont send them to a competitor who would make the loan and then take the rest of the relationship, Mr. Kottler said. We can set parameters for which lenders we want to look at customers and which ones we dont.
LiveCapital has 60 lenders. Anthony Ruebner, vice president of financial institutions at the company, said the volume of applications accepted on the network will rise as more lenders join.
We are quickly establishing a standard that supports 100% resolution of applications, he said.
David Kresge, senior vice president and chief of information strategy at Primestreet.com, which has about 40 lenders in its network, said loan recycling is good for relationship-building.
Its particularly effective if a person has applied as part of a marketing campaign, he said. The worst thing a bank can do is encourage someone to apply and then turn them down.
CapitalStream, a Seattle-based operator of an Internet small-business loan marketplace, may give recycling a try, said Erin Tiedeman, director of product placement.
People have been asking about it for the last four or five months, she said.
Nick Karris, a senior analyst with Gomez Advisors, is another member of the pro-recycling camp. Thousands and thousands of applications are hitting Web sites on a weekly basis, and a vast majority are being rejected, he said. So instead of simply terminating those relationships, now [lenders] can hand that consumer off and generate referral revenue.
Brook Newcomb, a senior analyst with Forrester Research, also says its a good idea.
The bank can say, We dont approve it, but have lenders who can help instead of rejecting them outright, he said.