Community and regional banks and credit unions have been fighting an uphill battle when it comes to small business lending. Larger firms can withstand more risk, letting them handle a wider range of loans for small businesses.
Alternative lenders, on the other hand, can provide responsiveness and small-scale loans that stand out for their efficiency and accessibility. This has left community and regional lenders in limbo, stuck between their two main competitors without an easy solution. Transitioning to online lending can change this situation.
The Need for Online Lending for Small Business Loans
According to an FDIC study, one key attribute of small lending is a focus on interactions with local customers. This trend is evident across small and large banks, but can potentially give an edge to community and regional banks as their strong presence in an area can make it easier for them to connect with small business owners in their area.
At the same time, the FDIC found that relationship-driven, interaction-intensive processes are necessary to support small business owners as they seek loans. Community and regional lenders can use their relational banking strategies as a way to stand out when compared to alternative lenders.
While smaller banks and credit unions have opportunities to separate themselves from competition, there’s still a major roadblock: Most banks and credit unions can’t keep pace with alternative lenders. While a small bank may be able to stand out from larger competitors by taking a hyper-local approach to lending, an American Banker report explained that online lenders maintain a strong advantage over traditional banks and credit unions because they can offer speed and responsiveness.
This is where the need to transition to online lending becomes so important. Community and regional banks and credit unions can employ online lending platforms to better compete in the market and take full advantage of the particular attributes that differentiate them in the first place.
Implementing Online Lending for Small Lenders
“Moving quickly to implement online lending can give organizations and edge.”
Smaller banks and credit unions likely can’t afford to build their own platforms from scratch. Moving to online lending is imperative as the small business lending market shifts, and building a custom platform is too cost and time-intensive.
Working with a risk analytics platform that can support online lending workflows, on the other hand, can streamline the process of putting new processes into place. By combining a modular risk management system alongside a user-facing online lending portal can streamline the move toward online lending, making it easier to reach the small business market.
Community and regional lenders have a strong opportunity to differentiate themselves when working with small business borrowers. However, slow, manual processes currently limit the potential gains available from the segment. Moving quickly to implement online lending can give organizations the edge they need to expand their small business lending opportunity in a cost-efficient way.
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