According to a recent survey, the American Bankers Association found that 61 percent of banks surveyed plan to moderately or aggressively grow their small business lending over the next two years. This growth would offer loans between $3 million and $100 million. In short, financial institutions have their eye on the small and medium-sized lending business.
An easy task? Think again. BAI industry insights presented earlier this year revealed the truth on how big this task will really be. BAI figures show that business banking loan growth declined in 2017, more than any time in the past five years at 5.2 percent. In addition, of the largest loan categories, the only ones to show growth of any kind between 2013 and 2017 was SBA loans – and they just barely rose 0.1 percent in 2017.
Even so, industry experts say they see positive signs. “Fifty-five percent of the owners of small and medium enterprises are willing to consolidate their personal and business relationships at the same financial institution,” says David Kerstein, president of Peak Performance Consulting Group, in a recent BAI Banking Strategies article covering revenue growth.
Winning over the small business owner
How do banks plan to win new small business owners, in the midst of increase competition? Banks really have two choices: offer better pricing or easier terms than their competitors. Unfortunately, both of these options could hurt bank returns. They also have the potential to increase risk for the institution.
On the other hand, it could make small business lending more efficient and borrower-friendly. (Something not seen in the traditional lending world for some time.) This would also enable financial institutions to win, process and manage more loans, minus staffing increases or added expenses. As they push to improve small business lending, there are three challenges banks have run into:
- Process, operations and staffing,
- And cost.
In an ABA poll, three-quarters of the nearly 200 respondents cited efficiency as a challenge when it comes to small business lending. 62 percent named the process/operations/staffing category as an issue, and 55 percent identified cost as a challenge.
For now, many small business owners are continuing to turn to alternative lenders. A cash advance, for example, still offers some of the most flexible, affordable options – without the hassle. Only time will tell how much traditional financial institutions will be able to improve their lending options and processes to be competitive.
Author Bio: As the FAM account executive, Michael Hollis has funded millions by using cash advance solutions. His experience and extensive knowledge of the industry has made him finance expert at First American Merchant.