Is making more business loans a top focus at your bank or credit union this year?
You’re in good company.
Nearly 90 of 100 bankers surveyed during a recent Abrigo webinar said their institutions plan to increase the volume of small business lending or commercial lending this year. However, many traditional community lenders will face real challenges meeting their lending goals for more business loans and higher yield, given expected interest rate hikes, higher non-interest expenses, and increasing competition for borrowers.
Indeed, some bankers are already giving up spreads in order to win loans, according to the January Fed Senior Loan Officer Survey. Bankers reported easier standards and terms on commercial and industrial loans to firms of all sizes in the fourth quarter, with 44% of respondents citing more aggressive competition from other banks or nonbank lenders as an important reason.
Among those with eased terms, 31% reported they had narrowed spreads of small business loan rates over the cost of funds, and 43% reported having narrowed spreads for large and middle-market loans.
This competition can only increase as the lending landscape continues to shift. Cornerstone Advisors surveys have found that the percentage of community financial institution executives who see fintech companies like Square and PayPal, which offer business loans, as significant threats has increased from 36% in 2021 to 47% in 2022.