This is a reposting of the piece “Q&A Break with Sam Graziano, CEO of Fundation,” published by Politico Pro / Politico LLC.
Fundation is one of a growing number of online small-business lenders that have popped up in the last several years. Company CEO Sam Graziano took a few minutes out of the fintech conference to chat about the company’s hopes and concerns on government policy toward small-business lending.
This transcript has been edited for length and clarity.
My main concern would just be if there ends up with state-by-state rulemaking that is too prescriptive. An example would be, there are some people that feel different ways about ability to repay, the concept of ability to repay [in small business lending]. And while on the surface that seems like, “yeah, the customer should be able to pay,” when you sort of peel the onion back a layer and sort of look at that issue it would actually be very dangerous.
The businesses that need capital the most tend to be younger, higher growth businesses. And those tend to be the businesses where expenses come before revenue. So you can look at that on the surface and say that business doesn’t have the ability to repay, but in reality they are a business that needs capital the most and is in a position to sort of do the most for society.
And so while I think some rules and regulations could be well-intentioned, I am worried that they could end up having the wrong effect. So that would be my concern if we end up with a state-by-state regulatory regime that could be too prescriptive, more onerous for small business finance companies.
I think we need to see it play out a little more, to see a little bit more of the substance behind what does it actually mean to have the charter. What areas that exist within bank regulation today are going to be applicable to a company that has this sort of special charter?
A perfect example? Should capital standards apply to a business like ours and what is the risk to the economy at large if a business like ours goes down? Our whole industry is still tiny in the grand scheme of the capital markets, so it’s those types of things in particular.
The Community Reinvestment Act is another thing. For us, the CRA’s probably not an issue at all, the vast majority of our loans are less than a million dollars for companies with less than a million dollars in sales, and we’re like the poster child for CRA-style lending.
Nonetheless, there are things that just need to be a little bit clearer. I think the benefits are certainly allowing institutions like ours a safe harbor, if you will, out there. If you have this charter and you operate a certain way, you can do your business without having to worry about any type of state-by-state law or type of regime.
I think further fleshing out the OCC charter is certainly a big one. Another that comes to mind, the different regulators that supervise the banking industry in essentially similar ways, but they all have their own take—the Fed, the OCC, the FDIC—you’re talking about a number of different regulatory bodies that are all essentially regulating the same things, I think jointly having very clear guidance of, when is it ok for you, Mr. Bank, to partner with a fintech, and what exactly needs to be in place for that to happen? What exactly does that fintech need to be doing to make that OK?
There’s some guidance out there. The FDIC has some, the Fed has some, but I think one comprehensive document that is signed off on by each of those regulatory agencies to say we’re comfortable with fintech partnerships when they look and smell like this, I think that would be great.
I think there has to be. I think, again, there’s a lot of good intentions out there. They’ve been in a little bit of … a chess match with some of these associations and coalitions of different philosophies and different things like that. Generally speaking, pretty well-aligned but it’s sort of been a messy process to get people to come together.
Whatever the subtle or not-so-subtle differences are between one group or another, I think not sorting that out is more dangerous than not having a unified voice to be able to say to government, “Look, here’s what we’re doing well for society, here’s our concerns” and to talk about what those clear issues are. But if they’re getting conflicting points of view from different groups, or different groups are saying different things, it could sort of start to muddy the waters a bit.
And for an industry that is in the grand scheme of things not that big — we look at it and feel that it’s big.
We’ve attracted a lot of attention for an industry that is sort of a rounding error in the scheme of the banking system. And I think it’s because it’s an early manifestation of what digital technologies can do to the lending markets in terms of the type of experience they can offer consumers and small businesses, the number of consumers and small businesses that can be served more effectively. So it’s almost like an incubation ground for the banking industry at large so it deserves a lot of attention, but nonetheless the industry is small. We need to be careful of and mindful of that to some degree because I think there’s probably only so much attention we’re going to get from the people making decisions in Washington.
Fundation combines the benefits of a bank loan with the ease and efficiency of an online lender. We offer conventional loans with competitive rates to businesses with varying credit profiles. Our technology allows us to deliver capital in as few as 3 business days through streamlining the collection and evaluation of customer information and conducting the majority of the lending process electronically. As a direct lender, we use our own capital to originate and hold the loans we make, so that we can focus on building relationships with our customers. Our dedicated customer relationship model enables us to understand each unique borrower’s business. This level of service, coupled with our best-in-class products, is why many of our customers come back to us repeatedly for more capital.