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5 Reasons to Expand Small Business Lending

December 15, 2016
Read Time: 0 min

In the 2015 Growth Strategy Survey by Bank Director, the most commonly cited areas for growth were Commercial Real Estate Lending, C&I loans, SBA loans, and Construction loans. This trend of focusing on commercial lending for portfolio growth seems to be gaining, as reflected in a 2016 poll by Sageworks where 42 percent of respondents said they would be focused on CRE lending for portfolio growth in 2017, while 39 percent said C&I would be the core of their growth strategy.

For many banks and credit unions, the challenge to growing their portfolio through business lending is finding large enough loans to justify the cost of origination, since smaller loans typically cost as much to originate as larger loans under traditional processes. However, by ignoring small business loans banks and credit unions could be missing out on big growth opportunities.

Consider five reasons why banks and credit unions should give small business loans a second look:

1. Of the 29 million businesses in the U.S., only 1 percent are large enterprises. Most U.S. businesses are sole proprietorships or small businesses.

2. Small businesses in the U.S. also constitute the largest share of firms exporting goods from the U.S., which means their capital needs fluctuate.

3. Small businesses are seeking credit. According to a 2015 Federal Reserve study, 47 percent of businesses with fewer than 500 employees had applied for credit in the past 12 months, but only half were able to secure all the credit they needed. The smallest businesses and startups have the most trouble finding credit and are often the first to turn to non-traditional lenders, like FinTechs for financing.


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4. The Federal Reserve study also found that 20 percent of small business owners cited managing cash flow as their biggest challenge, even more so than costs, regulation or taxes. This was especially true for young start up firms in high growth stages.

5. Small business customers are incredibly loyal, with a Wells Fargo survey finding that most small business owners prefer to do all their personal and business banking with a single financial institution.

As much opportunity as there is in small business lending right now, there is growing evidence that banks and credit unions aren’t meeting the borrowing needs of small businesses. This is compounded by the growing trend of Millennial small business owners. As Baby Boomers begin to retire Millennials are beginning to dominate the small business space, and they are increasingly comfortable with non-traditional lenders and FinTechs for their banking and capital needs.

In order to win over millennials and increase profitability in small business lending banks and credit unions may consider implementing technology such as lending software, automated loan decisioning or even just refreshing and optimizing their loan origination process. To learn more about opportunities in small business lending, download the whitepaper Smarter, Faster Lending. 

About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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