When it comes to government-backed small business loans, a little known $14 billion tech-focused bank in North Carolina called Live Oak dominates. Unfortunately Wall Street pays it no respect.
Ifsmall business is the beating heart of the American’s $30 trillion economy then it might be surprising to find out that the lifeblood it counts in the form of funding via loans, comes not from Wall Street’s mega-banks like JPMorgan, Wells Fargo and Bank of America, but from a tiny branchless bank in Wilmington North Carolina, just seven miles from Michael Jordan’s boyhood home.
Founded in 2008, Live Oak Bancshares, has 1,053 employees, $14 billion in assets, and a $1.5 billion market capitalization. Since 2017, it has issued $15.4 billion in government-backed 7(a) loans, more than any other bank in the country including the aforementioned Wall Street heavyweights. The 7(a) program is the Small Business Administration’s flagship offering, designed to help small businesses that might not qualify for conventional credit. Live Oak’s average loan is just $1 million, chump change for bigger, brand name competitors, but the lender does around $2 billion a year in SBA loans, plus another $3 billion in conventional small business loans.
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Live Oak doesn’t look or act like a typical bank—and that’s the point. Its 85-acre campus in Wilmington is surrounded by longleaf pines, not oaks, an arboreal misnomer no one seems bothered by. The four main buildings are styled more like a Silicon Valley startup than a bank, with cypress siding, exposed wooden beams, and not a marble column or rolltop desk in sight. And, of course, it has the requisite full gym and health clinic onsite. Rocking chairs line patios that overlook an 8.5 acre retention pond big enough to be mistaken for a lake, one of the only visual clues that this is the South, not south of San Francisco. Live Oak has no branches. All deposits come in online. And while most people think of small business lending as a handshake deal at the local bank down the street, Live Oak has flipped that on its head. It leans on tech, instead of geography with a fintech venture arm called Live Oak Ventures and a track record that includes spinning out the $3.4 billion market capitalization cloud-based banking software firm nCino. That edge in technology helps it approve loans faster. Which means it can make more of them.
The lender does other mission critical tasks differently as well.
Loan officers don’t earn commissions, a move designed to avoid conflicts between sales and credit. The bank also doesn’t try to be everything to everyone. It sticks to industries where it has subject matter expertise. The bank started by lending to veterinarians because its CEO Chip Mahan’s stepfather is a well-known equine vet. Today, Live Oak focuses on 35 industry verticals, including home health care, funeral homes, and auto repair.
That deep industry knowledge shows up in the details. Ryan Cave, a business broker who runs Sunbelt Business Brokers of South Florida and has been in the business for 20 years, says Live Oak stands out for pairing domain expertise with practical dealmaking. He’s worked with the bank on dozens of transactions, from quick service restaurants to franchises few lenders would touch. “They’re not box checkers,” Cave says. “They’re problem solvers.”
Ifyou want to understand Live Oak, start with its “knife” room whose walls are lined by glass cases holding more than 100 vintage pocket knives, framed like artwork. Mahan, 74, says he bought them on a whim, the result of a call from a friend in Kentucky selling off an old collection. (Mahan grew up in Lexington and remains a rabid Kentucky Wildcats basketball fan and a good friend of former head coach John Calipari). “I didn’t need 800 knives,” he says.
Like the knives, Live Oak is full of things that may seem unnecessary at first glance (like a small business lender with a fintech venture arm), until they’re put to use. Mahan built the bank around a simple premise: lend to the people big banks overlook. “I don’t think JPMorgan cares about the female veterinarian doing a million and a half in revenue in every town in America,” he says. “But we do.”
Mahan didn’t set out to become a banker. He just followed the path others around him were taking. While studying economics at Washington and Lee University in Lexington, Virginia, two fraternity brothers ahead of him went to work for Wachovia (which was acquired by Wells Fargo in 2008). When recruiters came to campus, they told Mahan if he could graduate, they’d take him too. So he did. He joined the bank’s management training program in 1973 and spent the next decade climbing through the commercial lending ranks in Winston-Salem, North Carolina.
He later returned home to Kentucky, where he launched a regional banking venture that bought up small thrifts across the state. But it wasn’t until the rise of the internet that Mahan saw an opening to build something entirely new. Teaming up with his brother-in-law, a security software expert, he helped launch the world’s first online bank, Atlanta-based Security First Network Bank, in 1995. The company offered online bill pay, basic banking, and even stock trading, all through a dial-up connection. The bank itself was sold to Royal Bank of Canada in 1998 for $20 million.
The real prize though was its technology.
It spun off a software unit known as S1 Corporation, which became a major provider of online banking infrastructure and was acquired by ACI Worldwide in 2011 for $520 million in cash and stock. Mahan had found his playbook: use technology to rethink old banking models.
That playbook has worked in a lot of ways. But it hasn’t done much for the stock. Despite its growth and reputation, Live Oak’s shares have struggled to keep up as of late.
While most bank stocks have been climbing, Live Oak has gone the other way. Its shares are down 25% in the last year. The KBW Bank Index, which tracks major U.S. banks, is up 25%. Investors have been bullish on banks. Just not this one.
Mahan isn’t losing sleep over the stock price (even though he’s taken the hit more than anyone else). He owns 6.8 million shares that were worth nearly $700 million when the stock peaked in November 2021. Today, they’re worth about $220 million.
He knows it’s down and has a few ideas why.
For one, there just aren’t many good comparables. Most public banks don’t focus on small business lending the way Live Oak does. That means when the small business economy slows, even if the stock market stays strong, Live Oak can look like it’s falling behind. In reality, it is just tied to a different cycle. Small businesses are more sensitive to rising interest rates, and many of Live Oak’s loans carry a variable rate. When the Federal Reserve started hiking rates to fight inflation, payments shot up, loan demand cooled, and the bank had to set aside more money to cover potential losses. That spooked the market.
Analysts agree that Live Oak’s stock performance hasn’t matched the quality of its business. Tim Switzer of KBW and Crispin Love of Piper Sandler both point to the same root issue: volatility in credit provisioning. Live Oak has had to set aside more money to guard against potential losses, even though actual loan defaults remain low. (Net charge-offs—the percentage of loans written off as a loss—rose from 0.15% to 0.27% between the first quarter of 2024 and the first quarter of 2025. Even so, that’s well below the 0.64% rate across all banks, according to data from the Federal Reserve.) That uptick in provisions, partly a result of growth and partly tied to broader concerns about small business credit quality, has rattled investors. Strip out the provisions, the analysts say, and the core business continues to grow at a healthy pace. But until the market sees how Live Oak weathers a full credit cycle, the stock may remain under pressure.
Tim Switzer of KBW sees the recent weakness as cyclical, not a sign of decline. He points to Live Oak’s long-term track record of growing shareholder value to make his point.
“The bank that has grown tangible book value per share the most since 2010 is Live Oak,” Switzer says. “And if you look at other time periods—the last five years or the last three years—they’re consistently in the top quartile.” (Live Oak’s tangible book value per share is currently $22.53)
The fundamentals are strong, and there are signs the small business cycle is starting to turn. Mahan says demand is picking back up and borrowers are adjusting to the new rate environment. That’s all good news for the core business. But Live Oak has something else cooking.
Live Oak’s executives are gearing up to tackle another corner of small business finance, targeting “charlatan” lending, a phrase that seems to have taken hold across the bank’s campus. They’re focusing on merchant cash advances, a high-cost financing option where lenders take fixed cuts of a business’s revenue, often through automatic withdrawals, with effective interest rates often exceeding 40%. Some small businesses flock to these loans for their easy access and rapid funding, despite the steep costs. It’s a fast-growing but largely unregulated market, and critics liken it to loan sharking. Live Oak sees an opportunity to disrupt this space with artificial intelligence, aiming for a fairer approach.
Live Oak is making that push through a startup called Casca, which has received investment from Live Oak Ventures. Casca describes itself as an AI-native loan origination system built to streamline small business and SBA lending. Its platform automates many of the manual steps that slow down traditional underwriting, from pulling credit reports to analyzing tax returns and bank statements. The goal is faster approvals, fewer back-office bottlenecks, and a better experience for borrowers. Live Oak plans to use Casca as the engine behind its effort to bring transparency and structure to a part of the market known more for speed and opacity than fairness, a move that mirrors its history of outsmarting bigger rivals.
Like another Wilmington native who was once cut from his high school basketball team, Live Oak has a way of proving doubters wrong. The bank keeps winning in the SBA loan segment of the economy most rivals ignore. Its venture arm is doing the same. Live Oak Ventures already has two big exits under its belt: Finxact, a cloud-based core banking provider, sold to Fiserv for $650 million in 2022. That same year, Jack Henry acquired Payrailz for $230 million. If their bet on merchant cash advances pays off, it could give them a foothold in an industry expected to reach $20 billion this year—roughly the size of the entire small business 7(a) market in 2020.
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