Online lending

Secured Lender, The, Nov/Dec 2000 by Rutberg, Sidney

The future is now.

There has been lots of talk about business-tobusiness lending and how it will revolutionize the asset-based lending business, but action has been limited. In recent months, however, giant General Electric Capital Commercial Finance and The CIT Group have moved boldly into the arena.

GE has developed a Web site designed to provide asset-based loans online and CIT has formed an alliance with FTADirect, a B-2-B marketplace for textiles; under which CIT Commercial Service will provide online factoring services. FTADirect is a global marketplace where buyers and seller can do online transactions for everything from fiber to finished fabric. CIT has agreed to provide credit protection for sellers in the FTA marketplace and lines of credit to the buyers.

Richard V. Romer, executive vice president of CIT Commercial service, said that initially, the factoring service will be on single invoices, "but we expect to develop full-- blown factoring relationships as we get to know them and they get to know us." Mr. Romer, who is in charge of e-- business for the factoring operation, said that a number of similar alliances have been made with Internet operations including TradeOut, a global Internet marketplace for surplus apparel and general merchandise and Cyber Merchants Exchange (C-Me.com) a Web-based service that connects retailers with manufacturers worldwide.

Mr. Romer said that CIT is doing more than $2 million in factoring business over the Web and is looking for $10 million to $20 million by year end.

At the consumer level, CIT also has an operating Web site for consumer loans called BrokerEdge, which, by mid-September, had already processed $2 billion in loan applications from brokers since January. CIT Consumer Finance said more than 80 percent of its new business has been coming through its Web site and growth is continuing,

At GE Capital, while there are still some phases of the program that involve old-fashioned face-to-face meetings, huge pieces of the lending process have been moved online.

GE calls its online operation E-enabling and says it is offering "the first Internet-based lending service - enabling a seamless exchange of information between borrower and lender." It also says that by "employing state-of the-art technology, E-nabling offers clients a secure extranet for the life of the loan."

The process starts with the Web site www.gecommercialfinance.com, which was launched in January. Hits on the Web site have been growing rapidly with the number tripling in the past six months. By the end of August, the site was averaging 15,000 hits a day. The Web site provides information on services available and the start of a loan through an online application. The initial application is merely an expression of interest in doing business and requires basic information about the applicant - name, address and type and location of business, name of the contact at the firm and the amount of money the prospect is seeking. Since GE Capital Commercial Finance has a number of divisions making loans ranging from $100,000 to $750 million, the size of the loan will channel the application to the proper division.

In late August, GE Commercial Finance was working with about 38 prospects for the online service and is working toward its goal of 500 new online clients by yearend. It also had about 30 of its existing clients who have moved to GE Link where they will also be able to take advantage of the online service. The company also has a goal of moving about 500 existing clients online by year-end in this category.

According to Terry D. Suppers, senior vice president in sales and marketing for e-business, within 24 hours after the initial expression of interest, the prospect is contacted by phone, a little more information is elicited and a meeting arranged. With all the high technology, "the prospect always wants to look somebody in the eye," said Mr. Suppers. At this point the general outlines of the deal are worked out and the prospect walks out with "My GE Deal, an ID, a password and an agreement to proceed to a proposal. As part of the process, GE visits the premises and does its due diligence. Principal collateral in these deals is inventory and receivables. Documentation and the final contract are all worked out online. Only the closing will require another face-to-face meeting since the GE system doesn't use an electronic signature."

Once a transaction is underway, the client can check an online calendar that traces the progress of the proposed loan and shows target dates for various phases. "So at anytime," said Mr. Suppers, "the client can check the exact status of the loan online."

As a transaction progresses, all the documents are available to the client online so there's no need for the voluminous paper files. Anytime a client wants to review the documents they are all in the online file.

The principal benefit from online lending is "productivity," according to Mr. Suppers. "Tons of paper are eliminated and the client benefits from the savings. There are huge savings for the client since the cost of managing a revolving line of credit is fairly significant. Much of this cost is eliminated in this online environment."