demystifying online business lending

Demystifying Online Business Lending

BusinessSource Presentation

June 9, 2015

Created by Sean Salas

© 2015 Camino Financial

State of Small Business Lending 2

Obtaining a loan below $250,000 from traditional financial institutions has been difficult for small businesses (“SMEs”)

Supply Side Issues Demand Side Issues

High transaction costs

Low collateral value

High risk, low upside

Takes 2+ months

A lot of paperwork

High credit standards


Online Disruption in SMB Lending

$178 Billion

$80 Billion

$178 billion outstanding in business lines of credit less then $250K

$80-120 B Estimated unmet demand for small business lines of credit

Online alternative lenders have emerged with flexible pricing models catered to meet unmet credit demand

Source: OnDeck S-1 Filing, FDIC, Marsh & McLennan

3


Emergence of Online Lending 4

Almost 20% of small business applicants searched for loans online in first half of 20141

SMB Value Proposition

Quick

Up to $500,000 in financing in as little as

four business days

Simple

Brief online application with

minimal paperwork for final approval

Flexible

Ability to underwrite SMBs with at least

one year in operations and credit scores as

low as 500

1 Source: Joint Small Business Credit Survey, 2014: by the Federal Reserve Bank of New York, Atlanta, Cleveland and Philadelphia


Growth of Online Lending 5

Marketplace Loans Gross Annual Volume

0.1 0.3 0.51.2

3.4

8.8

0.0

2.0

4.0

6.0

8.0

10.0

2009 2010 2011 2012 2013 2014E

Bill

ion

s (U

SD)

Source: Liberum. Volumes of Lending Club, Prosper, Funding Circle, Zopa, RateSetter


Key Products & Players 6

Short-Term Loan Intermediate Term Loan Line of Credit / Factor Merchant Cash Advance

Key Players

Term 3-24 months 2-5 years Up to 6 months 3-18 months

Credit Availability $5k-$250k $50k-$500k $2k-$100k $5k-$150k

Minimal eligibility * 1+ year in business

* 500+ credit score

* $100k+ Sales

* No bankruptcies within

2 years

* 600+ FICO Score

* 2+ years in operation

* 2+ full-time employees

* No recent bankruptcies

* No outstanding liens

* 600+ FICO Score

* High volume of sales

*A/R outstanding

At least $5,000 in

monthly credit or debt

card sales

APR 20%-60%+ 8%-25% 30% - 100%+ 30% - 100%+

Time of funding 2-4 Days 3-5 Days 1-2 Days 2-4 Days

Payment Schedule Fixed and daily

automated payback

Monthly / Bi-Monthly Fixed and daily

automated payback

5-10% charge from daily

credit card transactions

Guarantee / Collateral Personal Guarantee

required / No Collateral

Personal Guarantee

required / Business

Asset Collateral

Personal Guarantee

required / Accounts

Receivables

None


Emerging Concerns 7

High Interest Rates Lack of Transparency

Loan “Wind Milling”

Are these Payday Loans for Businesses?

High Brokerage Costs


Use of Technology Across Value Chain 8

Customer Acquisition

Underwriting Funding /

Collections Servicing

• Good AdWords

• Inbound marketing

• Social media

• Simple online application

• Mobile friendly

• Scorecard with instant qualification or pre-qualification

• Sync with APIs to limit inputs

• Big data analytics

• Instant direct deposit upon approval

• ACH payments on periodic basis

• SMS/Email notifications

• Optimize UI/UX to monitor performance

• Integrate into other online services (e.g., Quickbooks)

9 Online Lending Ecosystem

Source: Orchard


What’s Next?

Regulation knocking on the door?

Customer and product segmentation

Large/community banks to partner with online lenders or adopt technology

International expansion is already happening

Lenders slow to adopt technology will struggle

Traditional lenders’ lethal weapon: low cost of capital & low customer acquisition costs

10

Thank You

Together Moving Forward

Learn more at www.caminofinancial.com Call us at (800) 852-0655

http://www.caminofinancial.com/