How a mudslide prepared this small bank to handle the pandemic

George Leis realized that Montecito Bank & Trust in California needed a slicker, simpler approach to small-business lending after a series of natural disasters struck Santa Barbara and Ventura counties.

After several seasons of devastating wildfires, a mudflow crashed through the town of Montecito in January 2018, blocking the main highway and cutting off nearby communities from their regular stream of tourists.

Leis, the $1.9 billion-asset Montecito’s president and chief operating officer, went door to door to local businesses offering $5,000 signature loans. After nabbing a new customer — a coffee shop owner in the city of Ojai — Leis asked why he hadn’t chosen Montecito in the first place.

The owner, who had financed his business through a fintech that was refusing to offer temporary payment relief, told Reis he thought it would be too hard to apply for a loan at Montecito.

“In the back of my mind I’m thinking, ‘We’re requiring two years of tax returns, personal finance statements — I think he’s right,’” Leis said.

Montecito Bank used experience helping customers through natural disasters to improve its coronavirus response, says George Leis, the bank’s president.

At a conference a few weeks later, Leis learned about Numerated, a digital lending and sales platform for business banking in Boston. The bank originally intended to automate its small-business lending activity through Numerated. But the pandemic coincided with its planned launch, and Montecito pivoted to using Numerated for Paycheck Protection Program lending and forgiveness.

Once lending conditions return to normal, Leis said he expects the platform will boost his bank’s ability to target new customers, refine its marketing and, eventually, create a program to service loans for minority- and women-owned businesses.

These plans come at a time when digital banking is a key feature for small business banking: J.D. Power’s 2020 Small Business Banking Satisfaction Study found that 36% of customers opened their most-recent account online or through a mobile app in 2020, compared with 24% a year earlier. The study also found that banks that “supported the community” and “offered additional advice/guidance” scored highly for satisfaction.

The Numerated platform was appealing to Leis and his team for a few reasons: It would let them maintain their own credit underwriting standards, automate credit decisions — previously, the decisions were made manually — and do it with the knowledge that compliance considerations were baked in from the start, as Numerated is a fintech born out of Eastern Bank’s incubator.

“It was a game changer for us,” Leis said.

Leis said he expects certain sales and marketing features to be helpful once normal lending activities resume. Through Numerated, his bankers can curate lists of existing small-business clients who have deposit relationships with Montecito but not lending relationships, and vice versa, along with potential clients in their markets who have neither. Numerated also screens businesses in the bank’s market for their eligibility to apply for credit products.

Previously, Montecito’s bankers would purchase more general lists from credit bureaus.

“The discomfort our bankers had in cold-calling those lists was high,” Leis said. “A client would say, ‘Yes, I want to apply,’ but when their application hit it was obvious they wouldn’t qualify for a loan.”

Montecito will limit automated approvals to a maximum of $100,000 while it vets Numerated’s software, but Leis said he expects to raise the ceiling to $250,000, the maximum it considers a small-business loan, over time. He will also maintain the bank’s practice of visiting new small-business customers in person to gauge financial viability.

“We can do that as a community bank, sit down and converse,” Leis said.

When it came to the PPP, Montecito publicized its capacity to accept loans in local media and through the local Hispanic chamber of commerce and Women’s Economic Ventures (WEV), a business training and consulting service for entrepreneurs in Santa Barbara and Ventura counties.

Ultimately, Montecito made about 2,000 loans and gained roughly 400 new customers. The bank is currently focusing on loan forgiveness.

Going forward, Leis said he plans to use the platform for a new project: Targeting women- and minority-owned small business for a lending program the bank is developing with Score, a nonprofit that provides mentorship for small businesses and is a partner of the Small Business Administration, as well as local Hispanic chambers of commerce and WEV.

“These loans will have very different characteristics,” Leis said. “There may be some startups with a higher risk profile.”

Although Santa Barbara appears to be an affluent community on the surface, Leis said he feels there is a need for this program, especially as the bank expands north and south.

“There is a larger group of minority-owned businesses we can help from both a financial literacy and a lending perspective,” he said. “We can help those segments of the community that may not be as comfortable or as familiar with the services of a bank.”

The interest has existed for a while, but “after the civil unrest [over the summer] and George Floyd’s murder, we said, ‘Boy, we could really step up to help underserved parts of our community,;” Leis said.

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