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.