Author Topic: Business Lending Coming?  (Read 14194 times)

Fred

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Re: Business Lending Coming?
« Reply #15 on: April 29, 2013, 09:12:59 PM »
Yes, one big reason: banks has high operational expenses, and require high NIMs.
No, that's not it -- you are reading too much LC material.  It's because they haven't figured a good way to standardize it like a consumer loan.

Actually this was not based on reading too much of LC material. This (banks high expenses) was actually what Bill Gross said earlier this month.  As a person working in a bank, I agree with this.

As far as standardization is concerned, I think the way SBA looks & categorizes at small businesses loans is not too different than the way Fannie and Freddie see conventional mortgages.  They have a few key features to assess risks.

berniemadeoff

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Re: Business Lending Coming?
« Reply #16 on: April 29, 2013, 10:40:56 PM »
Banks have access to incredibly low cost capital in the form of deposits.  Massive scale to process payments etc heps too.

All of this debate good vs bad is kinda silly as we don't know what LC plans to do (neither do they I'd bet).


rawraw

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Re: Business Lending Coming?
« Reply #17 on: April 30, 2013, 06:16:33 AM »
If you work in a bank, then you know that bank structures vary tremendously based on their strategy.   There are banks with dozens of branches to develop non-maturity deposit (NMD) relationships, including teller lines and ATMs.  Then there are other banks that don't have one branch or one ATM.  Just an operation center, funded by brokered CDs, and have loan production centers to make consumer loans .   Then there are other banks that are funded by non-brokered CDs and only make small business loans, with no branch or ATMs.  And then you have Andy Beal's bank who just makes a killing doing crazy stuff.  The "average" community bank isn't LC competition, it's the non-traditional banks.  And there are quite a few of them.

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As far as standardization is concerned, I think the way SBA looks & categorizes at small businesses loans is not too different than the way Fannie and Freddie see conventional mortgages.  They have a few key features to assess risks.
Yes, but the SBA program is only valuable because it provides a "risk free yield" so banks sell off the guaranteed portion.  As you know working in a bank, the SBA doesn't underwrite the notes.  The banks have a guideline, but they do it and submit it to SBA -- and if they screw up something, SBA revokes the guarantee.  Those businesses are generally on average more risky than a regular small business.  Now if LC could become a SBA loan originator and handle all the paper work for underwriting and default, I'd love that.

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Banks have access to incredibly low cost capital in the form of deposits.  Massive scale to process payments etc heps too.

All of this debate good vs bad is kinda silly as we don't know what LC plans to do (neither do they I'd bet).
Trying to kill Peter's forum traffic huh?  And good point on the deposits.  That's one of Beal Bank's strengths to amassing fortunes.
« Last Edit: April 30, 2013, 06:20:04 AM by rawraw »

Fred

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Re: Business Lending Coming?
« Reply #18 on: April 30, 2013, 09:54:00 AM »
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One reason is that big banks rely on computer models to determine whether to make a loan...

This is the bank's department I worked in ....  To a large degree, I enjoyed discussions around Tools (P2P-Pick, Interest Radar, ...) in this Forum.

Now if LC could become a SBA loan originator and handle all the paper work for underwriting and default, I'd love that.

This is an option, IMO.  LC is already doing the origination and servicing on Consumer loans.  The guarantee provided by SBA is certainly good for loan volume.  Besides, under the Recovery Act and the Small Business Jobs Act, SBA loans were enhanced to provide up to a 90 percent guarantee after credit froze in 2008; this is good for lenders.

rawraw

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Re: Business Lending Coming?
« Reply #19 on: April 30, 2013, 11:56:37 AM »
Yea I think SBA would be the smart way. It'd be like having a securitized pool with an external credit enhancement.