A Community Bank’s Pursuit of Coast-to-Coast SBA Lending


lending-7-11-18.pngTraditional processes for underwriting and originating small business loans can be expensive and onerous for the typical financial institution, making it difficult to make these loans profitable. But Stuart, Florida-based Seacoast National Bank—through its partnership with SmartBiz, based in San Francisco—is already experiencing significant growth in SBA loan volume by automating the process and accessing a nationwide pool of prospective customers. In fact, the $5.9 billion asset bank plans to crack the Small Business Administration’s list of the top 100 SBA lenders by the end of this year.

It’s hard to argue with the results so far: Data from the SBA reveals the bank’s average number of loan approvals for 2018—43 per quarter as of June 22—are almost equal to the total number of SBA loans the bank approved (46) in all of 2017. Of the 129 SBA loans approved by Seacoast so far this year, almost 100 were generated through SmartBiz, according to the bank. SBA loan volume is at $33.9 million so far for the year—more than double the amount approved by the bank last year.

Seacoast started working with SmartBiz about a year ago, due to its interest in the fintech firm’s ability to provide access to a broad, national base of potential customers, says Julie Kleffel, executive vice president and community banking executive at Seacoast.

Eight banks currently participate in SmartBiz’s loan marketplace. Each bank outlines its credit policies and desired customer criteria with SmartBiz, which allows it to serve as a matchmaker of sorts between customer and lender. “We’re able to send the right borrowers to the right bank,” says SmartBiz CEO Evan Singer. Roughly 90 percent of the customers matched to the company’s partner banks are ultimately approved and funded, which benefits both the customer and the bank, which is less likely to waste time and resources underwriting a loan that it ultimately won’t approve.

Seacoast’s underwriters have the final say on whether the loan is approved, and they close the loan, says Kleffel. The guaranteed portion of the loan is sold on the secondary market, with Seacoast keeping the unguaranteed portion. (Under the SBA 7(a) loan program, the SBA pays off the federally guaranteed portion if the loan defaults.)

Kleffel says the two entities have a “collaborative” relationship and spent time early on learning how the other does business. Together, “we provided a way to better serve both our existing clients as well as new clients [SmartBiz is] introducing us to,” she says.

Seacoast currently ranks 108th on the SBA’s list of top lenders, putting the top 100 within sight. Access to more customers through SmartBiz has contributed to the bank’s SBA loan growth, but a more efficient process means the bank can handle the increased volume. The traditional 30- to 45-day process has been cut to 11 or 12 days, according to Kleffel. Ultimately, the bank would like to approve SBA loans within 10 days of submission.

Singer credits Seacoast for making the most of the partnership. “The leadership at the bank has really embraced innovation, and you can see what they’re doing out in the marketplace to meet customer needs,” he says, adding that the experienced SBA team the bank has in place is another key differentiator.

Seacoast aims to treat these new customers just as well as the customers it would attract more traditionally through its Florida branches. Each new customer receives a call from a Seacoast banker, introducing them to the bank. The same banker “works directly with them all the way through closing and post-closing, so that they’re appropriately brought into the Seacoast family with the same level of care” as any other customer, says Kleffel, with an eye to retaining and growing the relationship.

Seacoast has accomplished this growth without hiring new staff. SBA loan origination is currently supported by just five employees, including a department manager. Supporting that level of loan volume and growth would require double that without SmartBiz on board. The partnership, Kleffel says, “has allowed us to pull through more revenue, faster, with [fewer] people and a better customer experience.”

ChoiceOne and Autobooks Bring Rural Customers into the Digital Age


sba-6-20-18.pngAdom Greenland works with a lawn care specialist who was running his business in a way reminiscent of a bygone era. He’d leave a carbon copy invoice on the counter when he finished his work, Greenland would cut a check and some three weeks later, the small-business owner would finally be compensated for the work he had done weeks prior.

That arrangement is one that still exists in many rural areas, but Greenland, the chief operating officer at $642 million asset ChoiceOne Bank, headquartered in Sparta, Michigan, saw an opportunity to help rural customers like his lawn care specialist usher themselves into the 21st century by partnering with Autobooks.

ChoiceOne found itself in a position that many banks in the country have found themselves in at some juncture in the last several years: recognizing the need to make a move to remain competitive with booming fintech firms popping up all over the place. Located in a largely rural area in western Michigan—Grand Rapids, with about 200,000 residents, is the largest city in its area—the bank has been a fixture for its rural community but is slowly moving into urban markets, Greenland says. Its specialties include agricultural and small business borrowers that are comfortable with antiquated practices that often aren’t driven by technology. But in an increasingly digital world, Greenland says the move was made to make both the bank and its commercial customers competitive by improving its existing core banking platform to digitize treasury services for commercial customers.

ChoiceOne chose Autobooks to digitize its small business accounting and deposit process in 2017, a journey the bank began three years ago after realizing that the technology wave rolling over the banking industry was going to be essential for the bank’s future. But identifying potential partners and wading into the due diligence process was at times frustrating, Greenland says. “Everything was either, you had to pay a quarter-million dollars and then had to hope to sell it to somebody, or it was just 10-year-old technologies that weren’t significantly better than what we already had.”

Autobooks, through an array of application programming interfaces, or APIs, essentially automates much of the bank’s existing treasury services such as invoicing, accounting and check cashing processes. The system sits on top of the bank’s existing banking platform from Jack Henry, but works with FIS and Fiserv core systems as well.

With just 12 branches in a predominantly rural market, Greenland says this has become a game changer for the bank and its customers.

“My sprinkler guy could have been doing this a long time ago, but this will accelerate the adoption of technology [by] my rural customers,” Greenland says. “It’s bringing my customers to the next century in a really safe and easy way.”

The partnership between Autobooks and ChoiceOne generates revenue for both companies through fees. It is a similar arrangement to that of Square, QuickBooks or PayPal, the competitors Greenland is trying to outmaneuver while integrating similar accounting, invoicing and payments functionalities.

So far, the partnership has been able to reduce the receivables time by about two weeks, and automates many time-consuming tasks like recurring invoicing, fee processing and automatic payments. It also cuts expenses for the bank’s customers that have been using multiple third-party providers for similar services, which has driven loyalty for the bank. ChoiceOne hasn’t generated significant revenue from the partnership—Greenland says it’s at essentially a breakeven point—but the loyalty boost has been the biggest benefit, an attribute that’s becoming increasingly important as competition for deposits rises.

And the results are visible for small businesses, like Greenland’s sprinkler technician. “For that kind of business, this thing is absolutely revolutionary.”

Gaining a Digital Competitive Advantage



The average small business owner uses technology every day to run the enterprise—and the same is expected of the financial institution, explains Chris Rentner of Akouba Credit. Banks that adopt technology will have a competitive edge in the market.

  • Why Banks Should Explore Fintech Partnerships
  • What Small Business Customers Expect From Their Bank

The Little Bank That Could


strategy-9-23-16.pngSoon after Josh Rowland’s family bought Lead Bank in Garden City, Kansas, in 2005, the small financial institution felt the full impact of the financial crisis. The loan portfolio was in bad shape. Several employees lost their jobs. The entire experience lead to a lot of soul searching.

“It was really existential,’’ Vice Chairman Rowland says. “What do we survive for? What’s the point of a community bank? The situation was that dire. We had to really decide whether we should give it up.”

After much discussion, the family decided to hire Bill Bryant as the chief executive officer to help clean up the bank, now with $164 million in assets, and really focus on its niche: small business owners. A lot of community banks say they are serving small business owners, but Lead Bank decided to go a step further. In 2011, it launched a business advisory division for the purpose of coaching small business owners on cash flows, provide part-time or interim chief financial officers, and advice on strategic planning and even mergers and acquisitions. Rowland says a lot of small businesses could use advisory services, especially if they can’t afford to hire a full-time CFO. Lead Business Advisors has senior managing director Patrick Chesterman, a former energy executive for a large propane company and Jacquie Ward, a trainee analyst. The bank overall made a profit of $500,000 in the first six months of the year and saw assets grow 30 percent in the last year and a half, according to Federal Deposit Insurance Corp. data.

But the investment in advisory services is not a quick payback. Rowland says the division is not profitable yet. The challenges include marketing the program to a business community more accustomed to relying on trusted accountants or lawyers for such advice. Banks naturally have a lot of financial information and expertise, but they fail to provide it to their clients. “We ought to be figuring out every possible way to deliver that kind of financial expertise to Main Street business,” he says.

The tactic is an unusual one for community banks, which might have a wealth management division but not a business advisory division per se. And it’s expensive. Baker Boyer, a $571 million bank in Walla Walla, Washington, has been offering business advisory services as part of its wealth management division for years. But it has taken some 15 years to restructure the bank to offer such services, says Mark Kajita, president and chief executive officer. The average personnel expense per employee for the bank is roughly $80,000 annually with six lawyers on staff and the bank’s efficiency ratio is 73 percent, higher than the peer average of 66 percent.

However, the bank made $2.5 million in profits during the first half of 2016, with half of that coming from the wealth and business advisory division. Kajita says what made it possible was the fact that the bank is family owned and can invest in the long term without worrying about reporting quarterly financial results to pubic shareholders.

Community banks of that size have a real need to create a niche,’’ says Jim McAlpin, a partner at Bryan Cave in Atlanta who advises banks. “Historically, community banks have been focused on the small businesses of America, and to offer services to those small businesses is a great strategy.”

Joel Pruis, a senior director at Cornerstone Advisors in Phoenix, says banks have done themselves a disservice by relinquishing advisory services to CPAs and attorneys. “In terms of empowering lenders, in terms of providing more advice, we definitely need more of that,’’ he says. “Bankers need to be seen as a resource and an expert in the financial arena instead of just application takers.”

For Rowland, rethinking the role of the community bank is fundamental to its survival. “I don’t know how we expect to keep doing the same things and expect different results,’’ he says. People don’t feel their bank is adding any value for them, he says. “If that’s our industry’s problem that we haven’t given them an experience, that’s our fault,’’ Rowland says. “We have taught them over years and years that our services are so cheap, they ought to be free.”