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The Coffee Break Loan: Business Owners Pledged Money in Five Minutes

In the race to reduce application times for small business loans, Eastern Bank has a new entry: less than five minutes.

The Boston-based Mutual Savings Bank took three or four weeks to process loan applications as employees gathered information, ticked off long checklists and filled in dozens of data fields from paper forms.

It now distributes loans of up to $100,000 in a fraction of the time. The speed is possible because the 198-year-old institution has spent millions of dollars in recent years automating the process and doing more work up front.

The move includes a marketing element and won’t be for everyone. For now, it is only available to small loans and existing customers, whose history is readily available.

Yet it shows how a new generation of faster, tech-savvy competitors from Silicon Valley is forcing banks to rethink conventional procedures and be more aggressive in pleasing customers. Long wait times and cumbersome applications are big aggravations for many small business owners seeking bank financing.

At work at Ichabod Flat Oysters

Don Wilkinson works at his Massachusetts oyster farming business, for which he secured a $10,000 loan through Eastern Bank’s fast-track loan process for small businesses.

Ichabod Flat Oysters owner Don Wilkinson and crew member Fred Clancy visit the oyster farm in Plymouth Bay, Mass. Mr. Wilkinson is a retired school counselor who now works as an oyster farmer. He took out a loan in May under Eastern Bank’s fast-track approval process.

Simon Simard for the Wall Street Journal

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“It’s pretty rare that a customer needs the money in five minutes,” said Dan O’Malley, who heads the bank’s technology arm, known as Eastern Labs. But a quick approval, he said, “sends a signal to the customer that we value their time.”

Other banks fearful of losing business to faster lenders are also scrambling to speed up loan approvals. JP Morgan Chase & Co. recently signed a deal with online lender On Deck Capital Inc.

to provide small business loan approvals in minutes and same-day or next-business-day financing. Bank of America Corp.

began offering a new simplified line of credit last summer that shaves about two weeks off its typical three-week process.

The emergence of super-fast loan approvals, however, has raised concerns about reckless borrowing and lending.

Fast loan approvals are a plus for small business owners, but serving customers “isn’t just about quick turnaround,” it’s also about whether the loan is the right fit, Karen said. Mills, former director of the US Small Business Administration. If a loan is “either too expensive, too much money, too little money, or you don’t have a repayment path, it is likely to result in a poor outcome.”

A decade ago, Bank of America and others suffered a surge in delinquencies after abandoning traditional underwriting methods and relying heavily on personal credit scores to grant loans. faster small business loans.

Bank of America said its new program is aimed at existing small business customers that the bank already knows well. “We are committed to growing responsibly and have significantly strengthened our risk framework since the Great Recession,” a Bank of America spokesperson said.

A JP Morgan spokeswoman said the bank plans to maintain its existing credit standards, but will leverage technology to gather insights that will allow it to say yes to small business owners faster and more often. .

Quicken Loans Inc. recently came under fire for a Super Bowl ad promoting a “Rocket Mortgage” that lets borrowers quickly apply for a home loan on their cellphones. The Consumer Financial Protection Bureau warned the public on Twitter the day after the announcement aired that borrowers should not rush into a big loan.

Bill Emerson, managing director of Quicken Loans, said the Detroit-based lender had maintained its underwriting standards and was trying to cut a 30-45 day process to two weeks. “I don’t see how it could lead to irresponsible borrowing because if you don’t qualify, you don’t get the loan,” Emerson said.

Don Wilkinson and Fred Clancy bring up trays of oysters to be sorted on a sandbar.


Simon Simard for the Wall Street Journal

Officials at Eastern, which holds $9.6 billion in assets, said many borrowers receiving the bank’s new loan would otherwise have turned to online lenders who promise quick approvals but at a higher cost. raised. Current Eastern loan rates under the new program are 6.99% to 9.99%. Online loan rates are often 50% or more.

“If we don’t pay attention to the direction the industry is taking, we will be left behind,” said chief executive Richard Holbrook, who took the top job in 2007 and through the 1990s worked as a director. financier for a bankrupt biotech start-up.

The bank invests 1% of its revenue, or about $4 million, annually in Eastern Labs. The nearly $10 million spent to date has dampened profits, but Eastern hopes to sell more small business loans and offer its technology to other lenders.

To speed up approvals, Eastern developed an automated process to gather most of the underwriting information it would need in advance, for example, bank statements, current and past loans, industry sector and years of ownership. exploitation.

The bank removed requests for information it did not use to verify the loans, such as a list of the business owner‘s personal assets and liabilities. The 55 requests for information on the old form have been replaced by eight. They include contact information, annual sales, loan amount requested, and social security number. Borrower also agrees to Eastern reviewing Borrower’s personal credit report.

Automation allowed Eastern to review this information instantly, while removing time-consuming tasks for bankers: filling out 58 fields of information on a computer from paper applications, completing a 19-item checklist and print 10 additional forms to send to the loan In process.

The bank’s technology team planned a test of the offer in late 2014. But some eastern bankers were initially hesitant, saying borrowers should not be selected at random but should be selected in advance . In the end, 600 customers received offers and 36 signed up. Of these, one has fallen behind on loan repayments, slightly above the normal annual delinquency rate of less than 2%.

Don Wilkinson, owner of Ichabod Flat Oysters in Plymouth, Mass., was among the first borrowers. A retired school trustee who now works as an oyster farmer, Wilkinson took out a five-year, $10,000 loan last May at 5.9% to pay for seasonal expenses like oyster seed.

“It was very effective,” said Mr Wilkinson, who spent less than five minutes applying and received the money the next day.

As the bank has expanded the program, it now funds loans in as little as 30 seconds after the customer presses the button. Those who register after 8 p.m. must wait until the next business day.

In a few weeks, Eastern plans to roll out rapid approvals for new customers looking for a loan. The process, which includes opening a current account, will take approximately 20 minutes.

Write to Ruth Simon at [email protected]

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