Digital Innovation Essential as Small Business Lending Shifts Into 2019

Small Business Lending Software

Sustained economic recovery has combined with the rise of online lending to foster growth in the small business lending market. With banks, credit unions and alternative lenders all increasingly looking for value opportunities in this sector, institutions must look for areas where they can gain a competitive edge and stand out.

The good news, at least for smaller banks and credit unions, is that the relational nature of the small business lending space gives them an advantage if they can capitalize on their relationships by offering suitably robust lending processes. Ultimately, this competition stands as one of the major small business lending trends heading into 2019.

It was only a few years ago when banks and credit unions were happy to let small business loans go to online lenders. Now, the value opportunities are present across a variety of lender types and firms need to be prepared to adapt.

Understanding the state of small business lending
Online lenders have already disrupted the small business loan sector. A Federal Reserve study found that many small business owners are aware of the availability of online lenders and are even acclimated with one or two of the major brands in the sector.

While online lenders are becoming mainstream, they are still dealing with hurdles. On one hand, small business borrowers are looking for detailed product information on websites so they can fully understand what goes into various loan options. However, when these borrowers were shown sample online lending products, many found that it was difficult to understand the language used and felt there wasn’t nearly enough detail pertaining to costs and features.

“Adopting modern risk analytics systems can allow for streamlined online lending processes.”

The potential value offered by online lenders is clearly attractive to small business borrowers, but these lenders haven’t gained a stranglehold on the market because of gaps in the customer experience. This is an area where more traditional banks can gain an edge.

An FDIC study found that banks of all sizes consider small business lending to be a resource-intensive process. However, small banks have become more flexible in evaluating and interacting with small businesses. This has led to the perception that small banks can be more responsive, relational and attentive than their larger counterparts.

Taking advantage of the small business lending opportunity
Small to mid-sized regional banks and credit unions can use their relational clout and traditional transparency around products to reach small business borrowers in ways that large banks and online lenders can’t always match. However, these competitors tend to have a technology advantage that can allow for alternative lending options that create strong customer experiences.

Adopting modern risk analytics systems can allow for streamlined online lending processes, allowing smaller banks and credit unions to align their backend processes with their flexible, relational customer-facing experiences they offer. This can create holistic customer experience gains that give smaller lenders an edge heading into 2019.

GDS Link can help you identify the best use cases for analytics in your specific case and build on those consulting services with our modular risk management platform that makes big data accessible for smaller lenders.

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