The customer is king, and it is a rat race when it comes to acquiring new customers in the online lending industry. Add to that the multiple options available to the customers and it becomes even harder. So, finding different channels to lower the customer acquisition cost (CAC) is imperative for growth-focused young fintech lenders. This has prompted an established fintech player like Lendio to venture into franchising.
Right now, Lendio’s main influx of customers comes from direct channels and partnerships. The company has partnered with some heavyweights in their respective industries, such as Staples, GoDaddy, and American Express. But with fintech becoming increasingly congested and regulations getting more stringent by the day, leveraging franchises to tap new markets while lowering the CAC can be a key differentiator for a company. Franchising lets a business expand without the risk of deploying major capital, and this makes it even more appealing for Lendio.
How the Idea of Franchising Was Born
Executing direct marketing from a centralized place can be incredibly expensive and non-effective. The idea behind franchising is to acquire clients (i.e. small business owners in underserved markets in non-urban areas that have immense potential to generate revenues but are not being effectively captured). It is imperative to create awareness as 70% of small business owners are unaware that alternative lending sources exist, representing a potentially huge untapped market. For such markets, franchising can be a great channel to spread the word about alternative lending.
According to the Small Business Administration (SBA), America has almost 28 million small businesses with approximately 40% of small business owners considering additional funding each year. Lendio recently launched its franchising program to develop a national footprint and to capture a larger share of the small business market in non-urban areas.
Franchising is the right choice as franchisees are usually small business owners in their own right and are able to leverage local relationships in the community to build trust for the company. The company rolled out its franchise in 2017, and in 45 days was able to bring five franchisees on board. The first batch of five franchisees is out after a week-long training, and another ten are expected in the month of March. The company aspires to roll out at least five to seven franchises every month. It has tapped five different markets so far including Pennsylvania, New Hampshire, Vermont, and Dallas-Fort Worth.
Brock Blake, CEO of Lendio, started his career in Utah by connecting entrepreneurs to angels and VCs through a speed-pitching event. The event usually had 50-100 applicants each month. This helped him appreciate the power of SMBs and community relationships. Additionally, Ben Davis, Lendio’s chief franchising officer, has decades of experience in franchising, which has added extra value to Lendio’s core team.
Franchising Compared to the Broker-Agent Model
Lendio opted for franchising over the broker agent model for two reasons:
- Brokers do not enjoy the best of reputation in the market;
- Since franchising is highly regulated, it will help enhance the reputation Lendio already enjoys in the financial services market.
Since franchise owners invest their own money, the work rate and results are much better as compared to a broker representing the company. Also, franchisees usually think for the long term versus brokers who have no major investment in the company.
Franchisees get access to an average 25,000 business owners as well as Lendio’s technology along with national advertising and partnerships. They are coached by Lendio’s franchise support team who help guide small business owners in the lending process. Franchisees send customers to the company and the rest is taken care of by Lendio. The company tracks from which franchise the customer came, but, as such, there is no exclusivity in terms of location.
The franchising business model is uniquely designed for the benefit of both franchisees and Lendio. The company charges $25,000 plus a training fee, which is paid once at the initial stage. Marketing is backed by Lendio nationally. Locally, it is driven by franchisees, who are furnished with materials for local events. Franchisees are given the major share of profits on a 70%-30% split. They are required to have $60,000 in liquid capital and a net worth of $150,000.
Local Relationships are Key
Franchising of an online funding platform is a union of online technology and the local community. It gives Lendio an opportunity to establish relationships with the local community of business owners. It also helps Lendio target borrowers who are over 50 years of age and are reluctant to execute the entire financial transaction online. They represent almost 50% of the market, and franchisees can hold their hands throughout the online transaction process. Business owners, on the other hand, get personal service and the option to choose from over 75 lenders. The franchise system truly allows Lendio access to the entire spectrum of customers.
The company is assisting numerous business owners throughout America by reducing the complexities of lending with its online technology and creating a strong local presence through franchisees who are equally passionate about their own main street. By virtue of ubiquity, Lendio will be able to leverage franchising to bolster its aim to fuel the American dream for small business owners.
Lendio is a financial service provider, founded in 2011 and headquartered at South Jordan, United States. It is the nation’s leading marketplace for small business loans.
Lendio is metamorphosing itself into a blend of what people love about banks, their local presence, and what they love about fintechs, ease in the lending and application process. Thus, Lendio is looking to give the best of both worlds to small business owners.
Written by Heena Dhir.