Having sunk its SBA lending roots deep into a variety of industries, Live Oak Bank now plans to draw new growth through those roots.
 
During the bank’s recent conference call discussing its second-quarter earnings, CEO James "Chip" Mahan said its leadership is “elevating Live Oak Bank to the next level,” referring to the expanded focus as “Live Oak Bank 2.0.”
 
Greg Thompson, the bank’s COO, elaborated on those plans in an interview last week.
 
“Our goal is to be the first wholly digital small business bank in the country,” he said. “We’ve been an SBA lender, primarily, since our inception. Now we see an opportunity to offer more products: deposit products, conventional small business loans – things that round out small business needs.”
 
And as those small businesses grow and become successful, they may actually outgrow their qualification for SBA-backed loans and be best served by conventional business loans. Live Oak Bank wants to be a lender at that level as well. Offering standard loans “allows us to bank them throughout their life cycle,” Thompson said.
 
Some aspects of Live Oak Bank’s model will not change, however. It will continue to add industries to its lending portfolio, but in a “thoughtful way, making sure the organization can absorb the growth,” he said. “The remainder of 2016 will be more about absorbing than adding.”
 
And new products will be offered within Live Oak’s industry footprint, according to Thompson.
 
“We’ll stay in the industries we know best, and for which we have experts who speak their languages,” he said, noting that each industry to which Live Oak Bank currently lends has its own terminology, along with its specialized needs and challenges.
 
The immediate priority is deposit products. Live Oak Bank is currently building out its business checking account capability, with a target of going live in 2017.
 
“We’re in the process of building and testing [the program] in the last half of 2016,” he said.
 
“We currently have CDs and money market accounts and will continue to offer those, but we’ll be adding a typical checking account with a debit card with mobile deposit and remote deposit capture. Customers will be able to move money between banks,” he said.
 
The bank is a year into its e-Lending program, which has “continued to hit the mark” Live Oak set for it, according to President Neil Underwood, who discussed the initiative in the July 27 conference call. The e-Lending program offers conventional loans of $350,000 or less.
 
Thus far in the calendar year, Live Oak Bank has made about $310 million in e-loans and SBA 7(a) loans, all within existing verticals, and Underwood said he thinks the program will beat expectations in the future.
 
Those under-$350,000 loans are simpler transactions than SBA loans, Thompson said. Because of the bank’s streamlined software, they can be arranged entirely online. And while the bank maintains a credit policy consistent with its SBA lending, it can expedite the process for these small loans.
 
“We don’t choose to do complex loans,” he said. “No real estate. They are for working capital or equipment financing ... or to do renovations, such as in hotels or funeral homes.”
 
Whether a customer wants a small conventional loan or an SBA 7(a) loan, which can be for as much as $5 million, the bank provides online services.
 
“Live Oak’s online lending portal makes it convenient for customers to apply for a loan, upload and sign documents, ask for help, and understand where they are in the process,” Thompson said.
 
Another aspect of Live Oak’s approach that will not change with its expanding scope of products is its service model, Thompson said.
 
“A lot of what we do feels like advice,” he said. “We spend a lot of time with [borrowers’] financial statements. We ask questions and compare their [business] to industry averages. In some cases, our relationship managers can act like surrogate CFOs. They can see around corners for these folks. [Borrowers] are following their passion but may not be expert in matters such as cash flow.”
 
As they work closely with borrowers in a specific industry, Live Oak relationship managers “become fiercely loyal” and “feel vested in [client] outcomes,” Thompson said.
 
“Our technology is the enabler, but the power is in the people,” he added. “We never let the technology become a substitute for the people.”