Loan Zone: Relationship versus tech delivery in small business lending

Two Federal Reserve studies suggest borrowers want everything; why shouldn’t CUs give them that?

The dynamics of small business lending have been changing rapidly over the past 10 years. Owners of small businesses today probably got their introduction to lending via fintech, so it’s not surprising that small-business owners are now turning to online loan origination processes in greater numbers. Having forged their expectations as consumers of personal loan and mortgage solutions in the early 2000s, these consumers-turned-business-owners now demand the same efficiencies in the enterprise arena.

Two recent studies from the Federal Reserve Banks of New York and Cleveland point to clues regarding the nature of these businesses, as well as their preferences when dealing with financial institutions. The studies indicate that smaller businesses (those with annual gross revenue of less than $1 million) gravitate toward online lending in greater numbers than their larger counterparts.

The most telling sign for the future, however, concerns the year-over-year satisfaction rates reported by small businesses between 2015 and 2016. Business owners participating in the New York study reported an increase of 31 percent in satisfaction with the online processes and results for that 12-month period. That is an amazing jump that should be setting off sirens in your credit union. That kind of increase in client satisfaction is reminiscent of the move Japanese auto makers made in the late ’70s against U.S. manufacturers.


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