Most owners of young small businesses—10 years old or less—have never applied for a business loan. The reasons are many, according to results of a Sageworks survey released earlier this year: they didn’t want to take on debt, they didn’t think they’d be approved, the credit cost was too high, or the application process was too time consuming.
For at least the last two of those reasons, a company called SmartBiz is proposing a solution. SmartBiz is a financial tech startup whose proprietary software is designed to help businesses reduce the cost of borrowing, receive credit faster, and enjoy a better lending experience. The platform launched in March 2014 specifically to provide Small Business Administration-guaranteed loans in amounts of between $5,000 and $150,000.
Yahoo Small Business spoke with SmartBiz General Manager Evan Singer about how his company is making it possible for more small businesses to borrow money.
Yahoo Small Business: Getting a business loan from a traditional lender can be a lengthy process. How is borrowing from SmartBiz different?
Singer: We offer a way for small businesses to get an SBA loan quickly and easily via an online application. They can be preapproved online after a 30-minute application process. We fund them as fast as within seven days. We move much faster than any other SBA lender in the country, and can offer smaller loans than others, but at the same loan terms and rates: a 10-year loan at between 6 and 8 percent interest.
YSB: How are you able to offer such quick turnaround?
Singer: The big banks have got manual processes to do their underwriting and origination. That costs a lot of money and takes time.
SmartBiz is a partnership between the automated credit delivery technology company Better Finance and Golden Pacific Bank, a national bank and preferred SBA lending partner. Better Finance automates the front-end of the application for the borrower and then automates the back-end underwriting and loan origination for the bank so that it can originate the SBA loans very quickly. Through that partnership we’re offering this now in all 50 states.
YSB: How many SBA loans have you processed since your formal launch in March 2014? And what percent of applicants are approved?
Singer: We’re seeing fast adoption and growth. We processed $150 million in applications in the last 6 months. We don’t give out information about the percentage approved.
YSB: You point out that most banks want to loan larger amounts. Why are you going after those customers who only need $5,000 to $150,000?
Singer: There are some 20 million small businesses in the U.S. and most need to borrow $50,000, not $5 million. It’s a vastly underserved market and the folks serving that market are doing so with higher rates. We can offer small businesses lower rates and lower monthly payments.
YSB: Do you make SBA-guaranteed loans to startups?
Singer: There are lenders that will give an SBA loan to start up a business, but we aren’t one of them. Loans from us are just for growing a business. We require that borrowers be in business two years or more. We’re offering loans for established businesses with a history of cash flow.
YSB: Besides cash flow, what should a small business owner be prepared to show to get approved for a loan from SmartBiz?
Singer: We ask applicants for financial information and we ask them to e-sign so that we can get their tax transcript. We collect data from them, their bank account, and the IRS, and then we’ll use that to make a risk assessment. We check their cash flow to make sure they will be able to make their loan payments.
A couple things are important for a borrower to focus on to increase the chances of getting approved: number one is business and personal credit. It doesn’t have to be perfect, but it has to be good. SBA loans have to be personally guaranteed by the business owner. And there can be no record of bankruptcy, judgments, or foreclosures.
YSB: How much are most businesses borrowing? And what are they using the money for?
Singer: Our average loan size is about $75,000. Loans are being used for working capital to help expand the business—for marketing, hiring, inventory, and operations. We’re doing a lot of debt refinancing for businesses that have higher interest debt. We also make loans for new equipment purchases. A lot of borrowers use the funds to buy whatever they need to buy to grow their business, such as a new oven or a new medical device.
YSB: You pointed me to a recent report that found that 75 percent of small business owners have never applied for a loan. Isn’t operating a business without debt a good thing?
Singer: It’s a good thing if they don’t need capital to grow. But 60 percent of small businesses need capital to grow their business. If only 25 percent are applying, there is a big gap. Why aren’t they applying? If it is because banks aren’t interested in lending smaller amounts or because the folks who are lending charge a lot, then we can help fill that gap. The more SBA loans we can get out in the marketplace, the more it will help build jobs and the American economy and benefit small businesses.