Filling the Gaps: Summit on Small Business Credit Innovations

Summit Highlights
On May 15th, the New York Fed convened business organization leaders and regional policymakers for "Filling the Gaps: Summit on Small Business Credit Innovations," a summit on how to maximize opportunities from credit innovations and minimize risk. Summit speakers featured non-bank lenders like LendingClub (peer-to-peer lending), PayPal (e-commerce lender) and CAN Capital (largest merchant cash advance funder), along with traditional lenders like American Express and JPMorgan Chase.
Here are highlights from the conference conversations:
State of the Market and Credit Opportunities
  • Outstanding small business loans (defined as <$1 million) from banks are below their pre-recession levels and are flat.
  • While 2/3 of outstanding small business loans still come from banks, alternative lenders (including cash advances, short-term loans, and crowdfunding) are growing rapidly.
  • As the economy continues to improve, demand for small dollar loans is predicted to grow.
  • Insights from surveys of borrowers—who is seeking funds and what their needs are versus what lenders may presume them to be—can be used to shape product offerings and application processes to fit the varying needs of prospective borrowers.
Presentations
New Products from Traditional Sources
  • Small businesses have three key credit needs: access to short-term capital, minimal paperwork, and quick turnaround.
  • Traditional lenders of small business credit are attempting to address these needs through new products and programs that target the $250k and under market and that combine technical assistance with capital investments. Examples include charge cards and the SBA’s Community Advantage Program.
  • Demand is growing for business loans of $100-500k, which remains an underserved market.
Presentations
  • Manish Gupta, Executive Vice President, American Express OPEN
  • Don Maloney, Senior Vice President, JPMorgan Chase
  • James Bason, President, TruFund Financial
  • Dan Nissenbaum, Managing Director, Goldman Sachs Urban Investment Group
  • Steve Cohen, Deputy Commissioner, New York State's Empire State Development
New Products from New Players
  • Tight credit from traditional sources has set the stage for the emergence of new lending companies who've adapted innovative technology to distribute business capital.
  • Alternative lenders have focused on improving the customer experience by automating and streamlining the credit application and underwriting process.
  • However, such innovations come at a price. Yields on certain alternative loans, most of which average in the $15,000-$30,000 range, carry rates within the typical credit card range, but with other fees and relatively short repayment terms, actual yields may stretch upwards to 50-70 percent.
Presentations
Credit Strategies for the New Market
  • Small businesses are increasingly using technology to search for credit. Online matchmaking platforms are using technology to match borrowers and lenders, lowering acquisition costs for lenders and search costs for borrowers.
  • Several panelists spoke about the need for improved information to assist businesses in understanding their creditworthiness. New business credit scores from FICO, for example, allow businesses to understand the components of their score.
  • Panelists underscored the importance of business owners being able to forecast their cash flow and the importance for economic policymakers to better understand small business owners’ decisions and investments.
Presentations
Event Details
Date and Time
Thursday, May 15
8:00 a.m. - 2:00 p.m.
Location
Federal Reserve Bank of New York
Liberty Room, 1st Floor
33 Liberty Street, New York, N.Y.
Audience
By invitation only.
Agenda
8:00am-
8:30am
Registration and Breakfast
8:30am-
9:00am
Welcome: State of the Market and Credit Opportunities

Traci Mach, Senior Economist, Federal Reserve Board
Maria Torres-Springer, Commissioner, NYC Department of Small Business Services
William Dudley, President, Federal Reserve Bank of New York
Claire Kramer Mills, Officer, Federal Reserve Bank of New York
9:05am-10:00am Panel 1: New Products from Traditional Sources

Manish Gupta, Executive Vice President, American Express OPEN
Don Maloney, Senior Vice President, JPMorgan Chase
James Bason, President, TruFund Financial
Dan Nissenbaum, Managing Director, Goldman Sachs Urban Investment Group
Steve Cohen, Deputy Commissioner, New York State's Empire State Development

Moderator:
Brian Headd, Economist, SBA Office of Advocacy

Expert Reaction:
Rohit Arora, Co-Founder and Chief Executive Officer, Biz2Credit
Giovanni Coratolo, Vice President, U.S. Chamber of Commerce
10:00am-10:15am Break
10:15am-11:25am Panel 2: New Products from New Players

Renaud Laplanche, President, Lending Club
Darrell Esch, Vice President, SMB Lending, PayPal
Andrea Gellert, Senior Vice President, OnDeck Capital
Daniel DeMeo, Chief Executive Officer, CAN Capital
Liezl Van Riper, Director of Development, Kiva

Moderator:
Bob Coleman, Editor of the Coleman Report

Expert Reaction:
Josh Tonderys, Chief Risk Officer, Prosper
William ‘Denny’ Dennis, Senior Research Fellow, NFIB
11:30am-12:30pm Panel 3: Credit Strategies for the New Market

David Nayor, President, BoeFly
Amir Kirkwood, Partner, Next Street Financial
Mike McGeehan, Client Partner, FICO
Scott Case, Chief Executive Officer, Main Street Genome

Moderator:
John Robertson, Vice President and Senior Economist, Federal Reserve Bank of Atlanta

Expert Reaction:
Alicia Robb, Senior Research Fellow, Kauffman Foundation
Todd McCracken, President, National Small Business Association
12:35pm-12:45pm Closing Commentary

Kausar Hamdani, Senior Vice President, Federal Reserve Bank of New York
12:45pm-2:00pm Networking Lunch
Videos: Small Business Leaders on Credit
Contacts
Chelsea Cruz
Event Coordinator
212 720-7969
chelsea.cruz@ny.frb.org

Shira Gans
Program and Relationship Director
212 720-1280
shira.gans@ny.frb.org

Claire Kramer
Regional & Community Outreach Manager
212 720-5371
claire.kramer@ny.frb.org
Watch the Summit