A Connecticut bank partners up to boost small business lending

Bankwell Financial Group in New Canaan, Connecticut, plans to leverage a partnership with Lehi, Utah-based Lendio to launch a nationwide business offering small-dollar loans backed by the U.S. Small Business Administration.

A longtime SBA lender, the $3.2 billion-asset Bankwell has focused on larger deals. During SBA’s 2024 fiscal year, which ended Monday, the average size of the 11 7(a) loans Bankwell made was $665,000. For fiscal 2023, Bankwell’s average 7(a) loan size topped $2.5 million.

“Our average loan size over the last couple years is probably close to $2 million,” Ryan Hildebrand, Bankwell’s chief innovation officer, said in an interview. “We’re really excited about the smaller balances, $150,000 or less. Obviously, it’s a space where there are a lot of underserved small businesses.”

Bankwell’s blueprint is straightforward. It will use Lendio’s loan decisioning and underwriting software to offer a fully digital  solution that shrinks the application, approval and funding process to roughly a week. “We’re able to go from application to fund in about six business days,” Brock Blake, Lendio’s co-founder and CEO, said in an interview. “We’ve really compressed that time frame.”

Applications will come from Bankwell, as well as from Lendio, which will funnel a portion of the loan inquiries it receives to the bank. Hildebrand is counting on faster turnaround times to act as a magnet for small business borrowers. 

“Speed is everything to these guys,” Hildebrand said. “If we can accelerate the speed to fund, it really opens up a lot of opportunities. A lot of fintechs have grown over the last decade based on speed, but the cost of those funds is a lot higher.”

According to a survey Lendio released in July, 85% of the more than 1,000 small business owners queried identified speed as an important factor in selecting a lender. Seventy-seven percent said they preferred to apply for credit online or through a mobile app. 

An online small business marketplace and financial services technology provider, the 13-year-old Lendio has helped source financing for more than 400,000 borrowers. Through its first nine years, Lendio had little involvement with SBA lending. Its introduction came during the COVID pandemic, when Lendio facilitated more than 200,000 Paycheck Protection Program loans. Lendio continued its connection once the Pandemic ended, especially last year, after SBA adjusted underwriting standards on loans of $500,000 or less to make it easier to use technology- and data-based tools to assess applicants. “The last couple of years, 7(a) loans have been the fastest-growing  product on our marketplace,” Blake said. 

Core services provider FIS announced a digital small business lending initiative employing Lendio’s software as its backbone this summer. 

Bankwell’s plans come amid an ongoing push by SBA Administrator Isabel Casillas Guzman for more small-dollar lending in the agency’s flagship 7(a) program. 

Under 7(a), SBA guarantees qualifying small business loans made by banks, credit unions and other private-sector lenders. Guzman has emphasized small-dollar lending from the outset of her three-and-a-half-year tenure. Her advocacy appears to have generated results, as loans of $150,000 have grown to nearly 9% of overall 7(a) lending volume, up from 3.4% in fiscal 2021.

During fiscal 2024, from October 1 to September 30, the dollar volume of loans totaling $150,000 or less increased $780 million over the fiscal 2023 result. “The rise in small dollar lending in SBA programs reflects the Biden-Harris Administration’s understanding of the crucial role small businesses play in growing the economy, creating jobs, and fueling the nation’s historic small business boom,” an SBA spokesperson said.

Bankwell’s apparent big-loan bias wasn’t a choice as much as a fact of life, according to Hildebrand. “At the end of the day, a lot of tasks in banking are still done manually,” Hildebrand said. Given that reality, it’s natural that small banks, including Bankwell, have focused on larger relationships and larger-dollar transactions “because they’re just going to make you more money.” 

Now, both Blake and Hildebrand believe technology like Lendio’s can generate further increases in small-dollar lending, along with increased participation in 7(a) by Main Street banks. “You’ll see some of these community banks with the appetite to adopt digital experiences grow their volume of SBA loans and take market share,” Blake said.”

Bankwell would not have been able to consider any type of small-dollar program without the help of a technology partner. “We have 140 people at the bank,” Hildebrand said. “We’d like to remain small…Making [the solution] super turn-key without having to go out there and spend a ton of money on marketing is really something that is going to be a big unlock for us.”

Along with its move into small-dollar 7(a) lending, Bankwell hired Michael Johnston to fill a new role as head of SBA lending. Johnston had served as national sales director at New York-based Ready Capital, a top-five 7(a) lender.  “We created the new role of head of SBA lending to further our evolution as a relationship-driven, commercially focused bank with a passion for assisting small businesses,” President and CEO Christopher Gruseke said in a press release.