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Credit Union Times | Why Some Small Business Borrowers Bypass Credit Unions

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Credit Union Times

By Mary Ellen Biery, Abrigo
August 23, 2019

Do credit unions still meet the needs of small businesses? Listening to some fintechs, they don’t.

“Unlike a bank, our application process is quick, easy and transparent,” peer-to-peer lending marketplace Funding Circle said on its website. Comparing its technology- and data-driven approval process to the “clunky and inflexible” underwriting process at traditional banks and credit unions, Funding Circle pitches that it provides funding in as few as five days from acceptance of an offer.

“More and more small businesses recognize that banks can’t meet their needs and now turn to alternative borrowing options,” Funding Circle U.S. Managing Director Bernardo Martinez said in a recent interview for Forbes.com. Citing a company survey, Martinez said the top reason small- to medium-sized businesses came to Funding Circle before going to a credit union or traditional bank for a loan was their concern the decision would take too long or would be too much of a hassle.

Of course, other surveys showed that borrowers have their own gripes with fintechs. A new report on the latest Small Business Credit Survey by the Federal Reserve banks found that satisfaction among successful credit applicants was consistently lowest among online lenders (49%). It was highest at credit unions (85%), followed by small banks (79%) and large banks (6%). Overall, more than 60% of applicants to online lenders reported challenges with their applications, compared with only about half of all large bank and small bank applicants, according to the 2018 Small Business Credit Survey.

High interest rates and unfavorable repayment terms were the most commonly cited challenges with online lenders; online lenders were cited more than twice as often for those challenges than either large or small banks or credit unions were cited.

However, the Fed survey continued to find higher levels of dissatisfaction with the wait times on credit decisions and funding at credit unions than at online lenders. Similarly, a difficult application process was a more common complaint among applicants at credit unions than among applicants to online lenders.

Loan officers, credit analysts and others who have been in the business for a while are probably not surprised that prospective members get frustrated with waiting for decisions on business loan applications. Bankers get frustrated, too.

Neill LeCorgne, vice president of banking at Abrigo and the former president and director of a multi-bank holding company in Florida, recalled that the loan approval process at his former institution had gone unchanged over several decades. It was slow and treated nearly every credit the same whether it was complex or straightforward, or whether it was extremely strong or clearly weak. That is the case with many institutions today as well, LeCorgne said during a recent Abrigo webinar.

“What that means is our process is still inefficient. I think we miss opportunities to grow our franchise with good loans, and more importantly, I think in cases where we tend to take a long time to get back to members, the member experience needs to be improved pretty dramatically,” he said. Otherwise, traditional lenders risk losing members to faster lenders with better member experiences.

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To read the full article featuring Abrigo, visit Credit Union Times, “Why Some Small Business Borrowers Bypass Credit Unions.”

 

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