BANK on it

Entrepreneur, April, 2000 by Juan Hovey

Last summer, responding to a radio commercial, Warman visited the Web site of Loan Wise (www.loanwise.com) and filled out a simple application for $25,000 in working capital. Warman employs half a dozen people, and, like many other business owners, he needs working capital to smooth out the peaks and valleys of his receivables.

"It was quick," says Warman, 37. "I applied online in the morning, and I got e-mail approving the loan at 1:10 p.m. on the same day--pretty exciting. Ten days later, I had the funds."

A working capital loan of $25,000 isn't much by the standards of many small businesses, but it was crucial to Warman. He was all the more surprised to get it because, having filed for bankruptcy in 1991, he struggled for years to re-establish his credit, and his brick-and-mortar bank wouldn't lend him a penny, even though the bankruptcy is now off his record.

"They didn't ask for tax records or financial statements," Warman says. "They asked basic questions--my name, the name of the business, the address, and so on--and I guess they pulled a credit report. It was much easier than going through all the paperwork with a bank branch."

Warman's experience notwithstanding, it remains true that Internet lenders, like their brick-and-mortar competitors, target consumers not business owners. "You can't get a business loan from us today," says Jonathan Lack, executive vice president of marketing and strategic planning at Compubank, "but you probably will be able to within the next year. There was so much concern about security when we launched that we decided to focus on core services on the theory that as customers become more confident about virtual banking in general, they'd feel more confident about borrowing money over the Internet, too."

On the issue of expansion, Parlontieri expects to transform EBank's lending activities from a network of offices in the Southeast to a nationwide system within five years--and he, too, sees a continuing need for face-to-face meetings between loan officers and business borrowers. "We know small business, and we're going to use the Internet to create value for the business owner," he says. "We'll rent office space and staff it with ATMs and loan officers. But we won't make loans over the Internet."

The bottom line: If you need to borrow for your business, you need a brick-and-mortar bank-at least for now.

WHAT'S AHEAD

According to Murphy, lending aside, virtual banks may offer many services valuable to small businesses--or they will soon. Murphy expects virtual banks to offer payroll services, employee benefits management, bill presentment and even tax-filing services at a reasonable cost in the near future, allowing business owners to manipulate a vast sea of financial information affecting the profitability of the enterprise.

"Virtual banking offers the business owner an exceptional opportunity to understand your exact financial position at any time," he says. "That's really valuable."

Fuan Hovey writes a weekly column on business finance and insurance for The Los Angeles Times. He lives in Thousand Oaks, California.