This week on The Art of SBA Lending, we sit down with Live Oak Bank CEO and founder, Chip Mahan, to discuss the revolutionary ideas that transformed the SBA landscape. Chip Mahan, who started the bank in 2008, disrupted the existing SBA playbook by focusing on nationwide industry vertical lending.

Chip details the bank's founding during the 2008 financial crisis , when he was told by the FDIC to liquidate the bank. He reveals the unique philosophy that led to the bank becoming a top SBA lender, including: rejecting the traditional commission-based compensation model to properly align interests , developing a "theory of verticality" by targeting specialized industries like veterinarians and chicken farmers , and using data from the Freedom of Information Act to determine which industries pay back their loans. He argues that a floating rate 7(a) loan is the "best asset that anybody can put on any bank's books."

The episode also covers the bank's commitment to technology, the importance of perfecting the "handoff" between the lender, underwriter, closer, and servicer , and the future of banking in the age of Artificial Intelligence. Chip explains how AI will dramatically affect determining SBA loan eligibility and create an "automatic credit memo".

🎯 In this episode:

• Founding Under Fire: The story of getting a bank charter in May 2008 and being told to liquidate the bank in March 2009 by the head of the FDIC in Atlanta.

• The Verticality Edge: Why Live Oak focused on niche industries and hired domain experts to create an "unbeatable" credit box.

• No Commissions: Why a compensation model based on stock and growth is superior to commissions, citing Charlie Munger's famous quote on incentive plans.

• The Future of SBA: Chip's prediction on the future of the 7(a) program and why he believes the loan size limit should be increased to $10 or $20 million.

• AI & Banking: How artificial intelligence will automate the credit memo, cash flow analysis, and dramatically simplify SBA eligibility determination.

💬 Do you agree that the floating rate 7(a) loan is the best asset for any bank's books? Let us know in the comments!

🎙This episode is sponsored by:

Lumos

Lumos empowers your small business lending growth with cutting-edge analytics and streamlined applications that optimize your performance.

If you're ready to take your small business lending to the next level with cutting edge analytics visit https://lumosdata.com/   

Shatterbox

Learn how Shatterbox can help you hire and invest in bright young talent without breaking the bank. Go to https://shatterbox.io/artofsba and set up a discovery call today. 

Head to http://www.artofsba.com for more information and to sign up for our must-read monthly newsletter to stay up to date with The Art of SBA Lending.