Using Technology to Reclaim The SMB Lending Market
Community banks have lost significant ground in the small business lending (SMB) market to large banks in recent years. While the number of small business loans hasn’t changed dramatically, the emphasis of control has. With small business lending being dominated by large banks, and that disparity growing each year, community banks are looking for ways to reclaim their stake in the market. Abrigo Vice President of Banking Neill LeCorgne, who recently led a webinar on Reclaiming Your SMB Lending Market, says technology can play a key role in taking back this important segment.
Current state of the market
LeCorgne describes how over the 2010-2016 timeframe, large banks increased their aggregate small business loan balance by $45 billion; meanwhile, community banks’ small business loan balance dropped $43 billion. Large banks had 78 percent of small business loans in 2010 and extended their control to 87 percent by 2016. The dramatic increase in large bank presence has been primarily through technology to originate and onboard loans efficiently. Large banks understood that the underwriting process wasn’t going to work alongside the traditional banking-branch model and was able to create a technology-driven approach, seeking out prospective borrowers and delivering credit through quick processes.
Technology to redesign the process
Community banks, meanwhile, have unique benefits to offer small businesses, according to LeCorgne. These banks are relationship-driven and are often locally owned, locally controlled and have local decision-making. But one area that community banks have been lacking in, compared to their big bank counterparts, is technology. Technology has been a key player for large banks looking to gain a bigger presence in the SMB lending market, and it should certainly be embraced by community banks as well. “Taking away the whole SMB segment from large banks isn’t going to happen, but community banks can redesign the processes for how they approach these businesses and bring in technology to make a substantial presence,” says LeCorgne.
The loan approval process is extensive, non-linear and expensive. “A good way to start the process of evaluating ways to attack the marketplace is by looking at your existing processes and finding areas you may be able to bring in technology to increase efficiencies,” suggests LeCorgne.
Going through the general steps in the SMB lending cycle can require nearly 31 hours and $2,250 of labor costs. But by taking apart the cycle and integrating technology, community banks can expedite the process and cut their labor nearly in half, LeCorgne says. Technology, such as the Electronic Tax Return Reader and digital loan application software, allows for automation of time-consuming processes such as credit assessment and underwriting, loan structuring and credit memo development, as well as loan decisioning and documentation. Implementing a lending solution will allow smaller community banks to analyze and approve loans quickly and become a more competitive player in the SMB lending market.
To hear more of LeCorgne’s advice on using technology to boost small business lending, read the whitepaper, listen to the replay of the webinar, Reclaiming Your SMB Lending Market.