Never Underestimate David Taking On Goliath

Nimble, virtual bank offers wine and craft beverage makers loans.
Live Oak Bank Founder, Chairman and CEO Chip Mahan

A bank you’ve probably never heard of is trying to unseat Wells Fargo, the second-largest US bank by market capitalization, from its perch as the No. 1 lender of Small Business Administration loans. And that little bank expects to lend up to $125 million to wineries and craft spirit makers this year.

“We are very unbank like. We have no branches. We have no tellers. We have no CSRs. (Customer Service Representatives.) We do not collect deposits in a traditional way, nor do we make traditional loans,” said Chip Mahan, founder, chairman and CEO of Live Oak Bank. But what they do is make Small Business Administration (SBA) loans.

They expect to make loans totaling $1.8 billion in 2017, including up to $125 million to family wineries, craft breweries and distilleries, he said.

By comparison, in federal fiscal year 2016, Wells Fargo approved SBA loans totaling $1.9 billion nationwide, a spokesman said.

He added that while the bank would “not speculate about forward-looking results, we can tell you that Wells Fargo continues to be the leading SBA 7(a) lender in the first four months of federal fiscal year 2017 (October 2016 – February 2017), approving 2,318 loans totaling more than $680 million.”

Live Oak’s Mahan said, “The interesting thing about an SBA loan is that 75 percent of that loan is guaranteed by the United States government. So, we package that piece and sell it in a very active secondary market allowing us to make more loans…”

Listed on the Nasdaq, Live Oak has seen its shares nearly double in the past 52-weeks, analyzed some 1,100 industries that the SBA allows lenders to serve, and found “those folks that pay you back, because the SBA has a lot of data on default ratios,” Mahan said.

Live Oak’s first sought veterinarians, then dentists. Wineries, breweries and distillers were added later around the time the bank lured Keith Merklin away from Wells Fargo to become the General Manager of the Wine and Craft Beverage section.

Live Oak Bank General Manager Keith Merklin

They use software to streamline the process, “but there are always more documents” in an SBA loan, Merklin said. “It’s not that different from a normal bank as far as the information we collect. We still collect three years of business tax returns, three years of personal tax returns, personal financial statement and resume.”

“The fact that we look at wineries and breweries every day allows us to spot what we’re looking for with a winery looking to grow,” said Merklin. “We know what the financials should look like.”

The only weapon Live Oaks has, Merklin said, is its ability to provide customers with quick answers. “We take the position that the customer is very busy. And all they really want to know is ‘Am I approved and when are you going to give me the money, and can you help me in the future?’”

Live Oak Bank shares closed Friday at $20.80, up 0.48 percent, while Wells Fargo shares on the NYSE ended the week at $55.83, up 1.05 percent.

Published on March 27, 2017
Topics: Banking
About the Author
Leslie Gevirtz
Contributing Editor, Business

An award-winning journalist, Gevirtz spent more than 20 years covering disasters—natural, political, and financial—before becoming Reuters’ wine correspondent; a beat that guaranteed her colleagues were always glad to see her.




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