Focus. If I had to sum up what has made SmartBiz Loans so successful to date it would be exactly that. Since 2013 SmartBiz Loans has been 100% focused on serving small businesses with the most efficient access to SBA loans.
SBA loans can be traced back to the 1950’s when the government created these loans to spur investment into small businesses by providing assurances around principal recovery if the small businesses fail. But like any good government program there are inefficiencies associated with SBA loans.
SmartBiz Loans looks to solve all of these inefficiencies and make the business of providing SBA loans to small businesses exciting and profitable again for banks through the utilization of powerful software, machine learning, AI and a healthy dose of focus.
Check out how Evan and his team are working to change the game in the SBA loan space and are making big waves with this singular mission to make life easier for small businesses and banks.
CL: Evan, I am intrigued to hear about your background since you spent meaningful time in the food industry before switching over to the finance industry. Why the change and how has this transition helped shape your approach to building SmartBiz Loans?
ES: My background has really been about building and growing brands, companies and teams across four industries including food and beverage, consumer packaged goods, medical technology and financial technology. The principles are pretty much the same now, as far as finding an unmet need in the category, and really developing the category around that. The goal is to build a business and a brand that meets an unmet customer need better than anybody else in the market.
With SmartBiz we found that entrepreneurs had an unmet need where they couldn't get easy access to low-cost capital from banks, and that's what we help them do.
CL: For those who don’t know, how would you define SmartBiz Loans as a business?
ES: At our core, we make SBA loans easy for small businesses and banks. The need that we're filling for the small business is providing access to low-cost bank capital, which they’ve identified as their most important need.
We focus on four things: Saying yes to the amount they need, in a way that they can repay it, at the best rate they can get, in a fast and easy way. We have developed an ecosystem where we have businesses come to us, and we package up their loan online, utilizing our artificial intelligence and predictive analytics to help move them through the process quickly, while determining which banks will provide the best rate for them. We’ll then send those borrowers to this bank on our platform. We currently have five banks on the platform that all license software from us, so that they can automate their underwriting and origination processes.
Through that process, we're able to say yes more often because we have multiple banks that we’re matching to their ideal customer. Our banks have cut their processing costs by as much as 70 percent. SBA loans have the lowest monthly payment by a factor of five to twenty in the market, with the lowest rates. It's much, much faster and easier than the borrower could get at a brick-and-mortar bank or anywhere else. SBA loans typically take three to six months to get funded – on our platform, small business owners can get funded in as few as seven days after their application is complete.
CL: For people who don't know what an SBA loan is, can you define that and explain what that is for small businesses?
ES: The SBA was actually started by the government in the 1950's to help small businesses grow. Small businesses are considered the growth engine of the U.S. Over fifty percent of all jobs in the U.S. are produced by small businesses. They are the key linchpin to our economy. The SBA’s primary role now is to allow banks to originate more loans to more small businesses by providing a monetary guarantee.
If banks follow the SBA’s guidelines, the SBA will pay back a percentage of the principle if the small business owner defaults.
Banks can take more risk, and small business owners can get more loans. It’s a win-win.
CL: What type of market size opportunity do you think there is in just focusing in on the SBA loan market specifically?
ES: The market opportunity for us is limitless: Though we focus on SBA loans, we're not constrained to the SBA loan market size. There are about twenty million small businesses in the US. Depending on what survey you're looking at, about 60 percent of them need capital.
One reason this market is so large is that after 2008, banks stopped originating smaller-sized loans to small businesses because they were far less profitable. Online lenders like OnDeck and Kabbage have come into the market with higher-cost capital that is more expensive for small business owners to afford in the long-term.
In fact, we know that we’re working with customers who have already gone to online lenders. Almost half of our loans have a refinancing component; we can get a loan that costs a small business owner $20,000 down to $1,000 or $2,000 a month. That’s transformative for the business owner. What we're doing is helping to bring the banks back into the market with our technology by allowing them to cut their processing costs while maintaining compliance. Couple that with the marketplace we’ve created that reduces the time it takes for small business owners to get funded, and it’s clear that the opportunity we have to help people is huge.
CL: You are taking an intriguing angle to marketplace lending as you appear to be providing a layer of service to the banks and small businesses rather than acting as an actual lender?
ES: I call it an ecosystem that services all of our stakeholders. For the small business, we will package up their loans for them, and do so in a way that's much more efficient and faster they would have to do if they were to go to a bank. We have a team of people in San Francisco that combined with our software and AI make the process really simple for businesses. Also, since we are partnered with several different banks that all say yes to different credits we can drive up the approval rate for our borrowers.
The next thing we do is we send the small business borrower to the right bank, so that they can get to a yes more often. All of the banks on our marketplace license software from us because they couldn’t efficiently or affordably make these loans without it. The software automates their underwriting, and origination of these loans, which significantly reduces the processing cost of these loans. From an underwriting stand point, we don't have a separate algorithm that says, "Hey. This is how you have to underwrite things." We take the banks existing underwriting and we digitize it in a custom way for every single bank, and they like that. They all want to say yes to different factors. The software originates these loans about 70 percent faster with 70 percent fewer resources so that they can actually make these loans profitably.
When you combine both sides together, what you end up getting is an ecosystem that can meet the needs of the small business better than anybody in the market.
CL: Why do banks decide to partner with you rather than just license the software so that they can provide their own digital loan offering?
ES: That’s a great point. So about 90-95 percent of the loan inquiries we send to the banks end up being funded, which is unheard of in this market. For them to find the right loans to fund is an incredibly intensive process that they’d rather have us manage.
In addition to that, our bank partners license our software to automate their underwriting and origination process. So, part of the reason they partner with us is for the right loans, and part of it is that they want the efficiency. This includes compliance, which our software is set up from a rules-based stand point to manage. There are a myriad of SBA rules that have to be followed. So, in partnering with us, banks get better, more accurate, efficient and compliant underwriting, plus they get more volume. These benefits are what attract them to a full partnership.
CL: Who do you consider to be the core target bank that that you look to partner with?
ES: There are a couple things we look for. First off, they have to be an SBA preferred lender, which there are only so many of in the country. Then we need to see that from the top of the organization on down, the bank has to be committed to embracing technology and innovation. We are always looking to add more banks if the partnership and the vision align.
CL: What other features will SmartBiz Loans look to offer customers as we move forward, and are you looking for other ways to help these small businesses succeed?
ES: One of the things that we're already doing is if somebody doesn't qualify for a loan, we will help the business by telling them, "Here's why you didn't qualify. And here's what you need to do to fix it and come back to us in 60 days, or 90 days, or 6 months.” We do this in an automated fashion and with people as well. One of things we'll be doing more is really helping the businesses to progress up to get an SBA loan if they're not SBA loan ready right now.
CL: SmartBiz Loans has been noted for funding more women-owned businesses than loans sourced by traditional banks. Is this a focus of SmartBiz Loans, or just an unintended consequence of being data driven?
ES: You're right, about a third of our loans are provided to women-owned businesses, which is more than double what the SBA average is and, seven or eight times more than what conventional banks do. One of the greatest benefits of using an artificially intelligent technology platform is that it removes many of the biases people face when applying for loans. We’re proud of our numbers in this area and have seen similar success in minority-owned and veteran-owned businesses.
CL: How do you manage scaling the business despite needing to customize the format for each bank partner and the fact that this is a highly regulated industry?
ES: We have an engineering product and design team in San Francisco. They're incredibly talented folks, and from a technology stack stand point, we've got some real cutting edge technologies that we use. At the end of the day, the technologies are there to help us better meet the needs of the small business so that we can say yes more often, make the process faster and easier, and make sure that the businesses get the amount of funding that they need to grow.
Whether it be artificial intelligence, or our predictive analytics that we're using, it's all about helping small businesses succeed. And that is why we see a lot of customers come back for repeat loans because we are helping them grow and we are providing a top-notch customer experience.
CL: From a regulatory point of view, is there more that can be done to help small businesses have even better access to the loans that they need?
ES: The SBA has done a really nice job over the last few years. Though there is still even more that could be done to make the process easier including simplified documentation, and the removal of some of the requirements. Overall, I think they've made great strides.
CL: You have had some big time investors back you. What vision do you think your investors have for SmartBiz Loans?
ES: We've been fortunate to have some big name VCs invest with us from Venrock, to Investor Growth Capital, and First Round Capital. I think the biggest thing they see with us is that our model is able to meet the needs of small businesses. From a small business capital stand point, I think we are the best in the market because we're able to meet businesses needs really well. We're very focused on delivering value to our customers and our investors and I think that excites them.
The Minute Rundown with Evan Singer
CL: If you could provide one tip to someone considering starting up, what would it be and why?
ES: I would say something that I learned early on in my career is to have a process to set objectives for the business. Then put numbers behind those objectives so you know you've achieved each objective once you hit the set figures. Finally, detail core strategies of how you can achieve those goals. This method helps entrepreneurs focus, and when combined that with a lot of tenacity, can produce great results.
CL: What do you miss most about working in the food industry?
ES: Beverage is extremely dynamic as there are so many moving parts to it. It's similar to financial technology in that way. I actually ran a juice company, and started up some other beverage brands as well. It's a cool business.
CL: If you could model yourself after one founder, who would it be and why?
ES: Wow. It would have to be my grandfather. My grandfather started up a whole bunch of companies. He was a chemist. He actually worked on the Manhattan Project under Harold Urey in World War Two.
He started a company after that using his heavy water technology, and they made nuclear power plants around the world. Then he ended up getting into geo-thermal and made geo-thermal power plants. He has a whole host of different patents credited to his name on different ways to produce energy. He passed away many years ago, though we were very close. He used to help me with my science projects when I was a kid.
Evan is a business builder through and through. He exudes a confidence, a focus and a flare for understanding how to build immensely effective businesses. And it obviously runs in his blood, with his grandfather being a part of the Manhattan Project and going on to build geo-thermal power plants across the globe. Wow, that is far and away the most fascinating answer I have ever received to the founder question.
Evan’s unique nature and focus on Simple.Innovative.Change is why SmartBiz Loans has been able to identify a real market need and fill it with a powerful software driven solution that is revolutionizing the game for small businesses and significantly reducing the cost of their capital.
Helping small businesses to thrive through a more efficient loan engine is something we are seeing come to fruition in many different styles and flavors, but there is no doubt in my mind Evan and the SmartBiz team have carved out a great niche value proposition in this massive market.
Big days are ahead for Evan and his team. I can’t wait to see what’s next. Stay tuned…