Krista Morgan, the founder and CEO of the crowdfunding fintech P2Binvestor, always understood that funding small-business loans through investors would be challenging. But when the firm launched in 2014, she quickly recognized it wasn't lining up the investors or capital that was the difficulty.
"Finding capital through our investor platform has been relatively straightforward," she said. "Finding businesses and winning the business and being competitive in market and building the technology that supports the lending has been the harder side of the marketplace."
That's the reason P2Bi started its bank partnership program last year, which has so far struck deals with New Resource Bank (since acquired by Amalgamated Bank) and Pacific Mercantile.
“The whole reason for developing the bank partner program was we were trying to figure out how do we get in front of more borrowers,” Morgan said. “What we realized was that business owners trust banks, especially their local community banks.”
Morgan recently spoke with American Banker about increasing P2Bi’s work with banks, the technology driving its platform and the role diversity has played in its staffing. Following is an edited transcript of the conversation.
What were those initial investor meetings like where you essentially had little to show?
KRISTA MORGAN: They were tough. We're a double-sided marketplace. On the one hand, you have to go out and find businesses who need funding. And then on the other side, we have private and institutional investors who are buying the loans that we're making.
The early pitch was more focused on the crowdfunding and online lending.
In a funny way, we would say, businesses needs loans and banks aren’t lending. And everyone said, yeah, we know. But that’s what we had to convince investors of.
Ironically, that part of the business has been the hardest part to do. Finding capital through our investor platform has been relatively straightforward. Finding businesses and winning the business and being competitive in market and building the technology that supports the lending has been the harder side of the marketplace.
Has that part been easier over the years?
I believe finance, really anything that has to do with money, the trust and entity you are dealing with is hugely important.
We have hit some milestones and we have consistently done what we said we were going to do over and over again. And so that, which I would call our brand, has absolutely helped us. Over time, that's gotten easier. But I will tell you the whole reason for developing the bank partner program was, we were trying to figure out how do we get in front of more borrowers. And what we realized was that business owners trust banks, especially their local community banks. That's the first place they go.
What we said was, what if we can actually help banks make loans so that they can actually win the business?
What have those bank partnerships been like so far?
Our brand of fintech partnership is not purely about the technology, it's enabled by the technology.
The problem that banks have, at least in this space, is they lack the technology to cost- effectively manage the loans. But they also don't necessarily have the expertise and haven't been lending to these businesses for a long time. They don't necessarily understand where the risks lie and how to mitigate them cost-effectively. They also have risk tolerances that are sometimes absolutely not conducive to small-business lending.
So what we said is, we can bring in technology that makes it much more cost-effective to manage a loan that has a daily borrowing base, which is really what you need if you're going to lend to a high growth company because you don't want to extend them too much credit.
As for the technology, what’s the secret sauce there?
It's a little bit of everything.
But let me just say this: there hasn’t been a lot of innovation in commercial lending. Lending is a pain. In the end, you just want the money. So, how do you make it easy? We really set out to give customers a great experience. That meant we had to build a technology that made our experience as a lender better.
I would say our secret sauce is that we have built our own software platform that we have been using and testing for five years. Most lenders either build technology, or lend money. We do both. And so that has given us an advantage.
Heading into this conversation, I asked about challenges you might face as a woman in fintech. How do you view this area?
The one thing I like always just I'm bringing up is the diversity that we have on the team. We’ve been really different in that we’re female-founded and have made the effort to really build a very diverse team of employees. And I think that's contributed to our success.
What about as it relates to funding? There are always stories about how female entrepreneurs have trouble raising capital for their businesses.
I get asked that question a lot and it's like one of those questions where every answer you give is the wrong answer.
If I say, we didn’t get this financing because I'm a woman, that just sounds like I’m making excuses. I will say this: Do I think there is bias in our system when you’re a woman and everyone you’ve talked to is a man? Of course there is, and I can say that confidently because of the data that’s out there that says just 2% of venture dollars are going to female CEOs.
Do I think that’s the only reason we haven’t raised any institutional capital? No. I haven’t done this before. There’s no doubt that I could’ve done things differently. I could’ve hired different people. I think the [bias] is part of it, but I wouldn’t say that’s the only thing. I think what we have to do is keep talking about it to make people more aware.
