SMB, or small and medium business, lending is a hot topic on everyone’s minds in today’s climate, especially over the last 2 weeks with the emergence of the PPP loan. Our country’s economy is suffering, and while this impacts everyone, it disproportionately impacts the small businesses of America. Given that SMBs employ over half of US population, and with the drastic increase in national unemployment, we need this sector healthy in order to ensure a healthy economy moving forward. Equipped with that background, now, more than ever, banks need to enhance their digital banking capabilities, specifically their digital origination to better service their SMB customers.
I have spent the last few weeks deeply immersed in this topic and decided that there was no one better to discuss this further with than my long time friend, Jorge Sun. Jorge’s resume speaks for itself, as the former Head of Small Business Credit at Capital One Bank, founding team member and company director at OnDeck Capital (IPOed December 2014), and former board member of the Small Business Financial Exchange among many other banking leadership roles, to say Jorge is an expert in SMB lending is an understatement. All of his past experience has led Jorge to his next mission, building a fintech startup, LendingFront. LendingFront provides cutting edge lending technology to banks to modernize the origination underwriting and servicing of SMB loans. I sat down with Jorge to speak about the status of SMB lending now and in the future.
How/why did you get into your space?
I was a banker by trade and led lending for several of the top banks. One aspect that stood out was how limiting a bank’s credit tool set was when analyzing the SMB sector for credit eligibility. They always seemed to try to force SMBs into a commercial lending box. This method did a massive disservice to SMBs as they are very different than the typical commercial borrower, most are looking for loans under 100K versus a commercial borrower looking for $1M plus. I helped start a company called OnDeck to help deliver capital to SMBs in a much more efficient way and use much more SMBs relevant credit requirements to assess their risk.
OnDeck went public in 2014, I later joined Capital One to bring in the innovation we pioneered at OnDeck into the lending practices of the bank but quickly realized that the main problem the bank, and other banks, had was not the desire to lend differently to SMBs, but that they lacked the tools/technology to do so. So, I left to build LendingFront in order to give banks the technology they need to lend to SMBs much more efficiently and profitably.
What role do you play in the tech ecosystem and why is that role important?
LendingFront is reinventing how lenders deploy capital to SMBs across the country. Most lending is still face to face, LF is driving banks to adopt more efficient online channels to originate loans. By doing this, LF can drive the cost of originating SMB loans down which will incentive banks to lend more to the SMB space. Pre Covid, the SMB space had an unmet demand for credit in excess of 100B, now it’s over 500B. Banks are reluctant to lend to SMBs because they are too expensive to originate and manage manually, LF is changing this.
How has technology impacted your industry and why is this important?
Technology is driving change; most lending is still fairly manual and banker dependent which means only the largest and most profitable borrowers get great service. Technology is helping democratize access to capital, resulting in healthier SMBs. SMBs employ over half of US population, we need this sector to be healthy in order to ensure a healthy economy.
What do you believe is the most exciting tech trend for 2020 (as it relates to your industry)?
This was already a trend in 2020 but Covid has highlighted the need for digital originations by banks.
Who is a person that inspires you in the space and why?
Elon Musk, for the simple fact that he has changed whole industries by rethinking and using technology.
What advice would you give to someone who wants to get into your space?
Experience is key and capital as B2B selling has a very long sales cycle.