March 7, 2016
Main Street Monday — SmartBiz–The Online SBA 7(a) Marketplace Lending Disruptor?
Coleman Small Business Lending Podcast
Episode 14 — Evan Singer, President, SmartBiz
By Bob Coleman
Editor, Main Street Monday
Today’s guest is Evan Singer, President of SmartBiz, a venture backed financial technology company in San Francisco, CA. Evan has built a career around successfully building teams and launching and growing new brands and services. He has held leadership positions as Chief Revenue Officer at Milton’s Baking, President at Purity Organic, and General Manager at Align Technology. He started his career at Procter & Gamble, and graduated with honors from Stanford University.
SmartBiz grew out of the 2008 financial crisis when the banks that were supposedly “too big to fail” were not equipped to provide the funding small businesses needed for growth. This left a funding gap of hundreds of billions of dollars which banks left on the side-lines, hampering small business from investing in their businesses and putting people back to work.
Bob Coleman: “Sophisticated algorithmic scoring in the SmartBiz marketplace enables higher approval rates because the right applications are automatically directed to the right bank.” Evan Singer, President of SmartBiz, welcome.
Evan Singer: Hello Bob, thanks for having me.
Bob Coleman: What is a sophisticated algorithmic scoring system? Tell us about that.
Evan Singer: Well what we do is a combination of three different things. First, we have the leading online marketplace for SBA loans where we direct the right borrowers to the right banks. We use the underwriting characteristics of each bank and automatically determine if the borrower is the right fit based on those underwriting characteristics. Then we refer them to that (specific) bank driving up approval rates.
The second piece of what we do: The banks that are on our platform license our technology to underwrite and originate quickly so we are able to deliver a great online experience. Also funds to small businesses are as fast as seven days after they complete their application.
Lastly, we have an online packaging element combined with a team here in San Francisco that works with borrowers to easily collect all of their information and documents needed for an SBA loan.
When you put it all together it makes for a very easy and fast experience for SBA loans, which in our case carry low rates of 6.25% to 7.25% and long terms so it results in very low monthly payments for the small business.
Bob Coleman: Well I greatly appreciate you coming on the Coleman podcast, I have a ton of questions and I love your model. It is unique in the marketplace so let’s dive into it. It is interesting that you mentioned the online experience. This is being recorded on March 3rd and the New York Fed came out with a report this morning on “Credit Experiences of Small Business,” and it said, “Online lenders are a common source of financing but have the lowest borrower satisfaction levels because of the high interest rates.” You just said something which blew me away, 6.25%, you are not in the 35-50% APRs that some of the other online lenders dabble in?
Evan Singer: No we are quite a bit different. Our borrowers are getting some of if not the lowest rates and longest terms in the market. Our monthly payments on the low end are 2-3 times lower and on the high end 20 times lower than what they can get from the other online lenders in the marketplace.
Bob Coleman: Are you exclusively an SBA lender?
Evan Singer: We are. We only do SBA. We are just focused on that piece of the market. By just focusing on SBA it allows us to provide that great online experience for borrowers and do that very well. Our ratings are excellent, we have over 90% customer satisfaction. Our TrustPilot scores are fantastic, we are over 9/10. Borrowers are very happy after they work with us.
Bob Coleman: What I hear and what I read is that banks cannot make smaller loans because they are not profitable. They cannot play in that under $300,000 space, what do you know that they do not know?
Evan Singer: Most banks in the country do not want to make SBA loans less than $250,000-$500,000. You are right, they are not profitable. One of the reasons a bank would do a loan that small is they are thinking of the lifetime value which gets larger over time but they are typically money losers for the bank. The reason is it takes just as much time and effort to do a $100,000-$200,000 loan as it does to do a $1M-$2M loan. It takes the same personnel and time. Those personnel costs are so high the banks cannot make money on these smaller loans. What we have done is really leveraged technology to help automate some of the personnel costs. So the banks on our platform tell us we have reduced their cost originate and underwrite loans by 70%.
Bob Coleman: Evan why did you pick SBA as your product niche?
Evan Singer: A lot of it comes back to a need in the market. What we saw coming out of the 2008 financial crisis is that when the banks stopped making the smaller loans to small businesses because they were not profitable, a lot of online lenders came in to fill that void with expensive products and we thought we could do better. By partnering with banks that do SBA loans we are able to provide much lower cost of capital to businesses. We also thought that our software and technical knowhow could automate some cumbersome processes with the SBA and SBA loan origination. We felt that combination could really provide a winning product in the market for small businesses.
Bob Coleman: Tell me about what you call yourself? In other words you say that you are an online SBA marketplace so you got two of the buzzwords. Are you FinTech? Are you alternative?
Evan Singer: Well at our core we are an SBA loan marketplace. We are venture backed Silicon Valley startup Tech Company that has been around for six years. Overall when we think about what it is that we do, we make SBA loans easy. That is at the core of our brand. That is what we are all about. We make them easy for small businesses, we make them easy for banks. In so doing we are building our brand and products around making SBA easy.
Bob Coleman: Would you call yourself a lender? A loan broker? A facilitator?
Evan Singer: We are not really any of those. We are three things: an online marketplace where we auto-refer businesses to the right banks which drives up approval rates. Because many banks have different credit boxes, a borrower could go to a bank and get a no, while at another bank get a yes. The second piece of what we do is we are a bank enabling software provider. We help the banks that underwrite and originate on our platform make faster and easier decisions with software. Lastly we are an online packaging service for borrowers where we help them navigate the application and document process easily online. There is nobody in the market that is doing what we are doing. The reason we’ve combined those three things together is that is the only way to make SBA loans easy.
Bob Coleman: Evan my listeners are bankers so you know the next question is going to be, ‘How do you monetize this process, how do you make money?’
Evan Singer: We charge borrowers referral and packaging fee to be the agent and we charge our bank partners a licensing fee for the software.
Bob Coleman: I want to get back to the 70% (SBA personnel cost) reduction number. Can you be more specific, what does that 70% comprise of? I assume a loan officers processing time. Perhaps some brick and mortar overhead. Tell me more about that.
Evan Singer: It really consists of personnel and who would touch a loan at a traditional bank. We find that our bank partners typically have seven people work on and touch a loan throughout its process. We are able to cut that from seven to two. When we look at the amount of time a bank spends on underwriting and originating traditional SBA loans with us versus without us, which is how we get to the 70% figure. It takes our bank partners 70% less resources to underwrite and originate SBA loans using our software. That is how we are able to drive our bank partner’s profitability.
Bob Coleman: Normally when I talk to a lender I ask them about their credit box and their sweet spot. That doesn’t apply to your situation does it? You are taking a borrower’s application and history using your secret black box to place it with the best lender available. Correct?
Evan Singer: Well it’s a bit different than say a JPMorgan using an underwriting model with OnDeck Capital. We don’t do that, in fact we do the opposite. We take our banks credit box and automate that. Every bank has a different way of underwriting a small business as you know. Even down to the details of running cash flow, what is added back and what is not added back. What we do is customize our software to match out our banks underwriting box so the banks that we work with don’t have to change anything from an underwriting standpoint. We take their existing box and automate it.
Bob Coleman: Walk me through the application process. Is there any savings of time/processes for them?
Evan Singer: The application that we have set up is dynamic so it only asks for the questions that are relevant for that particular borrower. They can apply online whenever they have free time. Also we have a team of relationship managers here in San Francisco that can hold their hand through the process and give them the white glove treatment through the process. That combination of the online experience with expert knowledge here in San Francisco creates the best experience for the small business.
Bob Coleman: What does that cost your applicants?
Evan Singer: We charge them on average a 2% packaging fee.
Bob Coleman: Which is permissible by SBA, I know that is in the regulations. Walk me through it from the Bankers standpoint. What happens when Paul’s Pizza gets delivered into my inbox?
Evan Singer: What we found with our banks is that most of them have problems sorting the hundreds of thousands of small business applications to find the right one that actually meets their criteria. So it’s important the small businesses they are looking at are ones that they can actually fund. What we find is that 90% of businesses we referred to our banks are funded. Pretty much everything we send them is something they want to do and fits their box. That is critical in the time saving process. The way the software works from a workflow standpoint is that they will automate the processes they would traditionally go through for underwriting, file audit, developing the credit memorandum, generating closing documents, and all of the key parts in the origination process, we provide software for those key and time intensive processes.
Bob Coleman: Well a 90% approval rate from a referral source is a very impressive number.
Evan Singer: Yes.
Bob Coleman: What type of lenders do you want to work with? Give me a lender that you want to adopt your platform and refer loans to.
Evan Singer: Typically the best type of lender is a PLP lender. They understand SBA well. They originate nationally and have a desire to do so. From a senior level they will have to embrace technology and leverage that to speed up internal processes. And a strong desire to focus on SBA versus conventional loans on a national basis.
Bob Coleman: Can you disclose how many lenders you are working with?
Evan Singer: We currently work with three.
Bob Coleman: So you have openings for more. In your algorithm, in your sorting, do you take in macro-economic trends such as what is happening in West Texas and North Dakota in terms of the oil price collapse?
Evan Singer: That is a lender by lender decision. If one of our lenders does not want to lend to a specific industry then that would be their prerogative. I can tell you right now we are not limiting loans in any part of the country. We loan in all 50 states. If there is a strong small business in west Texas we would look to offer them a loan. But if our bank partner instructed us to not offer loans to a specific geography, we would not refer loans from that region.
Bob Coleman: How extensive is the interview process. If I want to be your fourth lender how do I tell you my credit box? Tell us how that process works.
Evan Singer: Well it’s a discussion that we would have, if there is a lender that is interested please send an email to (email@example.com.)
Bob Coleman: I am very intrigued by what you are offering. Couple other items from your LinkedIn, you have 540,000 pulse followers.
Evan Singer: I do write a number of articles and post them to LinkedIn.
Bob Coleman: Well I am very impressed. Good for you. I also am very impressed that you hold a patent for Alcohol concentration delivery system, sounds like a beer bottle but I have to ask, what is that?
Evan Singer: I do have few patents. It’s something that I have done in past lives. What I have done for most of my career is start-up and grow teams of brands and businesses. I have built my career up in consumer industries and medical technology and now in financial technology. I like building teams and offering new products.
Bob Coleman: You have a very diverse background, why this space? Why Main Street lending and why SBA?
Evan Singer: I think Main Street needs it. I revert back to the financial crisis when banks stopped making small loans. When the alternative lenders came into to fill that gap with some higher prices products we felt that we could do it better. We knew we could offer small businesses around the country a much better product. What we have seen is that businesses are okay waiting a couple weeks to get 6% money with a ten year term rather getting money in a couple days and paying 50% or more with a short term and high monthly payments. We felt that we could do much better in the market. I feel that we have and will continue to do so.
Bob Coleman: Well said, from Silicon Valley, Evan Singer, President of SmartBiz.
Evan Singer: Thanks Bob.