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We continue introducing MonJa’s new project: Small Business Lending Interview Series. During these interviews with industry leaders, we will cover their stories of success, challenges they overcome, and secrets of their competitive advantages in small business lending arena, as well as their perspectives on the online lending industry. This time we are  welcoming our second guest: Rohit Arora, CEO and Co-Founder of Biz2Credit.

MonJa’s Small Business Lending Interview Series: Rohit Arora, CEO and Co-Founder of Biz2Credit
Rohit Arora, CEO and Co-Founder of Biz2Credit

About the company: Biz2Credit is a hub connecting small business owners with lenders and service providers, and seek solutions based on their online profiles. It was founded in 2007 and has funded over $1.6 billion in small business funding. It offers SBA loans, traditional bank loans, business lines of credit, equipment financing, business acquisition loans, commercial real estate loans, refinancing and merchant cash advances. The loan amount ranges from $5,000 to $5 million. Interest rates and terms depend in large part on credit history and how quickly a borrower needs money.

James: Hi, welcome to the podcast, Rohit.

Rohit: Thank you for the opportunity.

James: Certainly, definitely nice speaking to you. So let’s just get started by giving the listeners a little bit of a background about Biz2Credit and how you’ve come to start Biz2Credit.

Rohit: Yeah, Biz2Credit, the company, me and my brother we started it in 2008, early 2008, and the vision was to set up an online lending platform for small and mid-sized businesses and the ability to help them get access to credit, but not only that, also help them to get better and smarter with their businesses.

One of the ideas was the ability to go in and get access to other pools to which they can manage their cash flow, they could manage their business better.

Over the years, I think we have done that pretty successfully, both in terms of giving them money, but also helping a large number of small businesses to get smarter and better in managing and actually growing their business.

James: Yes, definitely. So how would you describe your borrowers? What’s your typical customer, what kind of size and what kind of capital requirements, would you say?

Rohit: So over the years, I think one of the big changes we have seen in the online space is the borrowers.

Those who used to come online were mostly very desperate people, who were not getting money from anywhere.

Now most of the borrowers who come online are the people who first want to go online and check what their options are.

A typical borrower of ours is like six/seven years in business, $3 Million plus in revenue, 690+ in their credit scores.  So pretty well established businesses looking for access to credit, looking for a better customer experience than what they get at banks and looking to get money at a faster pace and less of a suspense. We see that every single day.

James: That last point, would you say that’s your biggest difference from the bank? What would you say your biggest difference from a bank is for a borrower?

Rohit: I would say the big difference is less paperwork because we have digitized most of the stuff and the second is the ability to tell upfront the people what kind of money they will get, at what terms, and what rates and everything else. So I think those are the two big differences that we have compared to a bank which traditionally takes a very long time.

Also, you know, there is very little, I would say, transparency or very little visibility for the business owners when they’re applying to banks, whether they will get the money or not, and even if they get, how much will they get and what kind of terms it will look like.

James: Right, it certainly sounds like borrowers get a lot more certainty and transparency when they work with you.

Rohit: Yes, that’s what I think a lot of borrowers really like.

James: So over the years, what would be the most interesting business that you funded?

Rohit: That is a difficult question to answer, but I think some businesses just stand out.

We funded a woman entrepreneur business here in New York and she used to …just started out making macaroni and cheese, different kinds of macaroni and cheese.

We funded her first stall in Manhattan and then we put her online in terms of like we got a testimonial of hers and then she has opened three more stores now here in Manhattan. She sells macaroni and cheese which is something than one never thought that you can even make a business out of your passion to cook macaroni and cheese. So I think that is a very interesting business that we funded that has become a good local brand now and even now she is expanding even more.

James: That’s something particularly exciting about the type of lending you do. You definitely help your borrowers expand their business and provide capital when they really need it.

Rohit: Yes, exactly, I think the other key thing here is that we can see these businesses growing over time and expanding and creating more jobs and people getting smarter at holding the money in their businesses. I think that’s very fulfilling.

James: Yes, maybe switching subject on the investor side. So as you mentioned, Biz2Credit operates as a marketplace so how do you work with the investors? Do you see their role evolving over time from the early days to now and maybe in the future?

Rohit: Yeah, so when we started in the early days most of the investors were hedge funds or people who were looking for very high returns from this business. They are also trying to set up their funds, they were small funds, but over the years we have seen that has grown quite a bit. We have seen other players starting to come in including banks, including some large non-bank financial institutions. Next phase we see are even pension funds, and insurance companies are looking to get into the space.

So I think there’s more interest from mainstream players in the space who are trying to see….In 2016, we saw more shake up in the industry, more consolidation, which I think has been better for the overall industry. Also, we have seen customers have matured more, customers like to now shop around on their own online for access to credit, they are going less through brokers or the ISO channel. So I think the customers have become more educated, more informed as well as the lenders.

I would say the people who have survived, they have grown and I think technology is playing a bigger and bigger role now; score cards, technology, everything else in their processes.

James: Yes, and that’s really interesting. So we have seen, especially on the consumer lending side, a lot has changed. Certainly with Goldman Sachs entering the direct lending market for consumers, obviously, a ton has changed. Could you talk a little bit about how things have maybe consolidated a little bit on the small business side, what would you say were the biggest changes in the past few years in your segment?

Rohit: I would say some of the alternative lenders have just gone out of the business and new players who are trying to come into the market like Bond Street and all that; they can survive. I think the other thing we are seeing now is the aggregators in the small business space or the lead generators are having a tough time because most of the customers now directly want to go to the lenders.

Or, you cannot just be a lead aggregator or a lead generator anymore, you have to provide a valued service, more than that, both to the customers as well as to the lenders.

So I think that those things are evolving over time. We are seeing more automation, more…I would say consolidation and also products getting better. I think the initial exuberance which was there in the market and everybody was trying to lend a lot more money and trying to just pump up volumes, I think while that has gone away there seems to be a lot more stability in the industry.

I would say there is also more openness among banks also and other partners, the fintech players.

Also, some of the lenders have been thinking of providing online access to credit for small businesses, it’s still early days, but that has also started happening now.

James: Yes, and I think those are healthy changes that you see in the market that’s maturing.

Rohit: Exactly, so these early changes in a maturing market is getting….the consolidation market is getting, I would say, smarter in the way they do things now. So I think those are the things that are making it better.

James: One of the things that we hear from investors looking to invest in this asset class is….I guess the possibility of recession still looms in the horizon. What would you say, how would small business lending fare during a recession?

Rohit: Look at the SBA, losses are below 1% right now which is, historically, they have never been as low as this, as they are right now. The small business portfolios are performing pretty well and I think this is the first Test Card in the history of America where 80 or 90% of the benefit is going to go to small businesses, our businesses, because of the way the Test Cards have been structured.

We see a lot of optimism coming back into the market, both from business owners as well as we are seeing an increase in trust from investors because I think they are seeing changing yield.

And a lot of people who are out there, who are looking to invest in small businesses, you know, people who are part of  our…..doing it earlier and doing it in 2016/2017 because of the turbulence in the industry. They are coming back, they are getting better and getting more sophisticated.

I think the other big thing that is also happening is that, as I said, there’s more mainstream players starting to come into the space from an investment perspective also which wasn’t the case earlier. So I think that’s happening and then I think technology and score cards get better.

In terms of recession, I think people are not that worried right now because unlike consumer or auto in small business, there is not a credit overhang right now. The Test Cards are a big …..they are going to give a big benefit to the business income, operating margins and everything else. So I think from that perspective, you know, the small business owners are pretty healthy right now, the small businesses are in a very healthy state.

James: Yes, and that’s a very good point about Test Card. Besides the immediate Test Card on the corporate side, do you see any other changes on the tax or regulation side that’s going to change this business?

Rohit: Yeah, so I think the other thing on the regulation side is obviously…with the Trump administration coming in, the regulation has gone down. I think the overall hang about CFPB doing something in small business lending from a regulatory aspect has gone away totally because that was a big, very….for small business lenders in the alternative space so that has totally gone away. I think the other thing which has totally….now it looks good, you know, the businesses are going to increase their profitability, we already are seeing  that they want to invest more money to expand their businesses.

We are also starting to see more people buying commercial real estate in the business space. For people who are occupying those spaces they want to buy it because from a tax perspective again you get a big tax benefit on that. So I think in that sense, things look positive right now and I think compared to where we were in 2014, 2015, 2016, things look a lot better today from a regulatory aspect as well as from a business…so I think in short term to mid-term perspective, it’s pretty healthy.

And the good thing is the next recession is going to come sometime because it has been a long time that there has been no recession. I think the next recession is going to be different, it’s not going to be credit ladderization. So if it’s not going to be a credit ladderization then it will be companies which have tight risk policies and tight collection policies will actually be able to even gain more market share.

James: Yes, and I think all those are forces that we can expect to shape small business lending. Are there products that you are working…..are there changes in your product set that you are thinking about in light of our healthier small business climate?

Rohit: We launched a commercial real estate lending product last year that has done very well; we are expanding that more. On our working capital products, we are looking to add more variants of those products and I would say those are the products. We are still looking to do more and more. I would say commercial real estate actually as a product, bridge loan products and all that is doing pretty well and that’s going to even….you know, I would say the demand for that is going to up even further.

James; Yes, those definitely sound like very exciting products to expand on. Obviously, this is a crowded market. So before I let you go, can you talk a little bit and tell our listeners what you’re working on to stay ahead of competition given the state of small business lending.

Rohit: Yeah, one of the things we are investing a lot of money on is our technology because we have some great datasets, we have very low loss rate in the industry today, I would say the lowest in the industry so we are building on top of it.

We are creating more predictive analytics, seeing how we can use AI for better customer on-boarding experience as well as for better risk analytics, risk predictability, build better pricing engines and also enable to predict the customer needs better.

The other thing that we are working more and more is how we can make our funnels better, online funnels better, because the day and age is coming where more and more people will just want to tap a phone or talk on the phone and would like to fill out applications. People absolutely typing in their information on all that is going to go away very soon, actually, so I think we are reaching that stage.  

Next year or a year and a half, people will be tapping on their phone or just talking on the phone and they want everything to be done through visual or through verbal instructions more and more.

That is coming so how do we plan for that, how do we make our platform more compatible to those things and also how at the back can we create better score cards, better risk engines to lend money in a smarter way and also be more precise actually.

James: Congratulations on the growth of Biz2Credit the last couple of years, it’s  definitely been pretty amazing to see. I personally look forward to seeing more growth coming from you guys. Thank you for your time today and for coming to our show.

Rohit: Thank you.

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