Understanding the New Landscape of Business Lending. August 23, 2016

Transcription

1 Understanding the New Landscape of Business Lending August 23, 2016

2 Why Do Accountants Need to Understand the Lender Landscape? 2 Over 250,000 small businesses are expected to take online or alternative loans this year The cost of financing varies from lender to lender, it s confusing, and the wrong financing can hurt your client s viability There are a lot of new loan products available online You are in an important position to advise and counsel your small business clients

3 The World of Small Business Financing Has Changed 3

4 There Are New Options to the Bank 4 Non-Bank Lenders Deliver $Billions: OnDeck $4+ Billion PayPal $1+ Billion GoFundMe $2+ Billion

5 Why Did This Happen? 5 Searching for capital has historically been a challenge for many business owners A time consuming process Stringent credit requirements Limited credit choices Rigid collateral requirements

6 The Traditional Lending Process 6 Apply Approve Fund Bank Process: Offline, Paperwork Manual Review Several Days Bank Timeline: 26 Hours 1 Weeks - Months Several Days Add up the time it takes away from a business owner 1 Source: Small business survey conducted by the Federal Reserve Bank of New York

7 Traditional Financing Options Just Don t Work for Everyone 7 Banks like to make $5 million loans, not $50,000 loans Banks rely on manual, time consuming processes that make it difficult to give business owners quick answers Credit criteria focuses on personal credit score and collateral

8 Which Means, this Business Likely Wouldn t Get Funded 8 Local Restaurant In Business for 3 Years 680 Personal Credit Score $750,000 Annual Revenues $80,000 in Net Profits Has No Collateral

9 Typical Qualification Requirements 9 Traditional Lenders 5+ Years in Business 700+ Personal Credit Score $1 Million in Annual Revenue Collateral Online Lenders 1 Year in Business 600+ Personal Credit Score $100,000 in Annual Revenue

10 Typical Documentation Requirements 10 For Online Lenders 1. SSN Always Required 2. Business Tax ID 3. Personal and Business Details Sometimes Required months of bank statements 2. Tax returns 3. Form Verification of lease 5. Report of outstanding business loans 6. YTD financial statements

11 The Good News 11

12 12 Business Owner Needs + Technology are creating new financing options

13 Industries Being Disrupted by Online Platforms 13 Then Now Retail Brick and Mortar stores Travel Traditional travel agencies Real estate Brokers and classified ads Payments Checks, cash and high card fees Capital Sources Retail banks and credit card companies

14 Financing is Finally Being Transformed 14 Then Now Traditional Lenders Long application process Significant paperwork Personal credit score-based evaluation Lend larger amounts Often require very specific, high value collateral Online Lenders Short application process Less paperwork requirements Data-driven approach Lend smaller amounts Can work with younger businesses Often require blanket lien on entire business but not specific collateral

15 What Our Customers Value 15 Access Speed Service Cost 1 Day Start Funding

16 16 Non-Profit Lenders Crowdfunding Invoice Financing New Financing Options Online Lending Loan Matching Site

17 17 Crowdfunding Visits Crowdfunding site and posts business idea A network of individuals pool their money to support the small business efforts Needs $40,000

18 18 Non-Profit Lenders A business partners with a non-profit lender for micro- and small business loans

19 19 Invoice Financing A business sells its accounts receivable to a third party

20 20 Loan Matching Site Visits Matching Site to find lender Matching Site filters info and suggests best lending options Needs $40,000

21 21 Online Business Loans How it Works: Apply Approve Fund Short applications that don t require an in-person meeting Faster approvals than typical banks Online Review 1 day 2 weeks End-to-end process in as fast as 24 hours 24 Hours 2 weeks

22 Online Business Loans 22

23 Short-Term and Long-Term Loans 23 Short Term Needs Long Term Needs

24 Short-Term Loans 24 Short Term Loans could be a good fit for: Buying quick-turnaround inventory Ramping up a new employee Bridging a seasonal cash flow gap Short Term Loans allow a borrower to: Borrow with a term suited for their loan purpose Meet the need Pay off the debt quickly

25 Long-Term Loans 25 Long Term Loans could be a good fit for: Purchasing a new warehouse or other building Covering the expense of adding a new location Purchasing heavy equipment Long Term Loans allow a borrower to: Meet a longer-term need with a term suited for that loan purpose Spread the cost of expensive purchases over several years

26 As a General Rule 26 The longer the term, the smaller the periodic payment but the greater the overall cost of the loan. Shorter-term loans typically have a lower overall cost but the periodic payments will be higher.

27 COST Approval and Capital Access Dynamic 27 Merchant Cash Advance Online Loans Factoring Banks CAPITAL ACCESS

28 Which Would You Prefer? 28 % or 37.5% APR 15.5% APR

29 Which Would You Prefer? 29 % $ 37.5% APR $700 interest cost vs. vs. 15.5% APR $3,500 interest cost

30 It Depends 30 Year 1 Year 2 Year 3 Year 4 $10,000 Borrowed over 6 months $700 interest cost 37.5% APR $10,000 Borrowed over 4 years $4,800 interest cost

31 It Depends 31 Year 1 Year 2 Year 3 Year 4 $10,000 Borrowed over 6 months $700 interest cost / higher periodic payments 37.5% APR $10,000 Borrowed over 4 years $3,500 interest cost / lower periodic payments 15.5% APR

32 A Common Tale: An Online Business Loan in 24 Hours (After spending 40 hours, collecting information and applying, over a month at the local bank) 32 A month to No A quick Yes in this case it was 20 minutes

33 33 Non-Profit Lenders Crowdfunding Invoice Financing Choosing the Right Loan Online Lending Loan Matching Site

34 It Starts with Loan Purpose 34 Understanding loan purpose compels us to ask: % Does this interest rate make sense for my loan purpose? Does the overall cost of this loan make sense for my loan purpose?

35 It Starts with Loan Purpose 35 Nobody would buy a new car with a 30-year home mortgage, regardless of how low the APR. It would make the overall cost of the car too expensive.

36 Loan Purpose Should Dictate Loan Amount 36 There are costs associated with borrowing Borrowing more than needed is just too expensive Lenders appreciate borrowers who know what they really need

37 Loan Amount Influences Where to Look 37 SBA Non-Profit Micro-lenders The SBA Banks and Credit Unions Online Lenders Loan Matching Sites

38 Good Fit for Online Small Business Loans 38 Pizzeria s oven breaks down. Needs to replace ovens immediately. Needs $25,000 Florist is gearing up for Mother s Day and needs to stock up on inventory and supplies. Needs $15,000 Restaurant needs financing to remodel and redecorate its existing space. Needs $150,000

39 Good Fit for a Business Loan at the Bank 39 Manufacturer needs to purchase new heavy equipment Needs $400,000 A doctor wants to buy out her partner s 50% stake in the practice. Needs $700,000 Restaurant is looking to move to a better location downtown. Needs $1,000,000

40 Capital Needs and Considerations 40 Amount Duration Hiring Marketing Open new locations Return Cash flow Buy inventory Purchase equipment Cash flow management New business idea

41 Loan Repayment 41 Online Lenders Traditional Lenders Monthly Weekly Daily Payment varies based on company, product, and risk level

42 A Four Questions Checklist What types of financing can your client qualify for? Which is the best fit for my client s business? How much does my client really need? Does my client have the information they need?

43 About OnDeck 43 OnDeck Overview Publicly listed company (ONDK on NYSE) Direct lender 100% focused on improving and enhancing SMB capital access A+ BBB Rating Loans in all 50 States, US, Canada & Australia Over $4 billion funded to small businesses Our Products Term Loans from $5,000 $500,000 3 to 36 month terms Rates starting at 5.99% AIR Lines of Credit up to $100,000 Revolving term Rates starting at 13.99% APR New Established Premium Complete Credit Solution Fast & Simple Process Dedicated Point of Contact

44 Questions? 44

45 45 For more information about the world of online lending, visit: OnDeck s educational website, dedicated to simplifying small business lending

46 46 Thank You Contact us: