Small businesses are the backbone of the U.S. economy, and the data seems to back up that familiar adage.
About 60.6 million employees in the U.S. work at a small business, comprising almost half of all Americans. Interestingly enough, 99.9 percent of all U.S. businesses are small businesses, according to data by the Small Business Administration’s Office of Advocacy.
But LendingFront CEO Jorge Sun said that often small businesses are overlooked by larger banks, falling through the cracks because banks “are just not currently set up to lend to those small businesses,” he explained. It’s easier for banks to lend to larger companies that have a more sophisticated financial system, have a CFO and assets.
That’s why fintechs like LendingFront exists, to help address these very issues. LendingFront claims to make small business lending easier for financial institutions. The New York-based company offers technology for lenders to “streamline the front-end process using a digitally-enabled application and borrower portal,” according to its LinkedIn.
Sun spoke with FinLedger about why LendingFront’s services are important, his outlook on loan demand and more.
Interview article has been edited to read clearly and concisely.
FL: Why is LendingFront important?
Sun: There’s a massive capital gap. If you want a robust and growing economy, you need to be able to provide capital to small businesses. You saw what happened when the [economy] closed, during PPP, how many people lost their businesses, how many people were employed by the mom and pops and retail [businesses]. There was devastation. Because if you think about it — who was impacted? Small businesses or large corporations? We didn’t hear any large corporations suffer that much. If anything, they thrived, because there was no competition anymore if you’re a big restaurant chain, or if you were a large online store. But if you’re a mom and pop, you were decimated, and those are the guys who need the capital.
FL: How was it navigating this past year for LendingFront, especially as small businesses really bore the brunt of the COVID-19 pandemic?
Sun: One of the things we enable our lenders to do is to originate loans more efficiently. They don’t have to have people originating loans. Also, the products that they can give their small businesses can be more tailored to small businesses. Instead of trying to give a small business a five-year loan, they can give them a one-year loan. Which is better because with most small businesses, the chances of them surviving five years is harder than surviving one year because of the volatility. Although PPP had a significant impact in terms of them [banks] stopping lending because you just had to, everyone didn’t know what was going to happen. Because they had the digital channels to originate loans online and not need people, after things started to stabilize, they were able to begin to lend again, relatively quickly. Most of our clients now are lending at higher levels than before COVID, because there’s a lot of demand. What technology allows you to do is to be flexible, fast and react to these types of shocks.
FL: What is your outlook going forward for LendingFront, especially taking into consideration that things are starting to return back to normal?
Sun: Extremely positive. There is significantly more focus on the importance of small business and how to service small business. What COVID did is it very quickly made a lot of lenders, or basically every business, understand that if you don’t have a digital solution your business is at risk. Basically, everyone hit the wall with what we call a business continuity problem. You can’t operate unless you now have some way to service your customers in a digital way. That has a direct impact on banks, how they lend and how they need to start thinking about — whether it’s a small business or not — that they need a digital solution for lending. Which has given us positive winds to talk to them. They’re more open to discussions around small business funding and efficiency in lending. That’s why it’s positive. It accelerated the adoption of new technology.
FL: Do you feel like demand will slow down for loans at all?
Sun: No. If anything, demand still is not where it used to be, because there was a lot of destruction and now you have to rebuild. There are standard businesses who need money. Now you have to rebuild. Also there’s a [capital] gap.
There’s a long way to go before there is a saturation point on loan demand.