Article Summary
Since the financial crisis of 2007-08, bank lending to small businesses has slowed down considerably. As a result, nonbank lenders have rapidly filled the gap. Recent research indicates that 32% of small businesses now apply for loans through nonbank lenders, up from 24% in 2017. Community banks have an opportunity to retake market share by leveraging their relationship business model and adopting modern lending platforms. These platforms can help community banks efficiently process small business loans and achieve the necessary return on investment. Community banks can also leverage new data and scoring models to expand their small business lending portfolio while mitigating risk. Small business lending provides community bankers with a new revenue opportunity, a diversified loan portfolio, and access to additional deposits.
Key Points
- Bank lending to small businesses slowed after the financial crisis, leading to nonbank lenders filling the gap.
- Recent research shows that 32% of small businesses now apply for loans through nonbank lenders.
- Bankers are risk managers by nature, which often leads them to shy away from small business lending.
- Community banks may lack the proper technology to efficiently process small business loans and achieve the necessary return on investment.
- Nonbank lenders provide a frictionless experience with end-to-end technology and a faster loan approval process.
- Small businesses have increasingly turned to nonbank lenders that leverage new or alternative data and scored loan models to serve previously marginalized business owners.
- Community banks can leverage similar models and help expand financial access for underserved borrowers in their local communities.
- Community banks should evaluate modern lending platforms that support an end-to-end process to optimize efficiencies and provide a positive customer experience cost-effectively.
- Small business lending provides community bankers with a new revenue opportunity, a diversified loan portfolio, and access to additional deposits.