I have the good fortune to talk to banks and marketplace lenders almost daily. In every case, the focus is on expanding their portfolios and reviving the branch banking system. That’s right, reviving. Branch banking is dead, but it is also in the best position to help small businesses.
Not long ago, the average business owner visited their local branch about 29 times per year. Today, it’s less than 3. With all of the banks investment in technology, banking has become easier and you can do it from anywhere. Great for the consumer, terrible for the relationship manager who used to excel at talking to his business clients who visited the branch.
Part of the problem with small business lending is the cost. It costs as much for a bank to make a $1 million dollar loan as it does a $50k loan. That means the bank works just as hard, for a lot less money. Naturally, the banks moved upstream in their lending efforts and invested in larger companies with both the propensity and the capacity to pay back the loan. It also meant, that small business was being underserved. Any time there is an underserved market, opportunity exists.
This created the explosion of marketplace lending. Funding websites designed to cut through the red tape of the bank and put money in your bank account in a matter of hours. During Q4 of 2014, bank lending portfolios shrunk by 3%, while this new agile lending source grew by 144%. Believe me, everyone took notice.
Now we have the proof. Last month, Biz2Credit, a leading marketplace lender who has partnered with the banks released an article. The article, Loan Approvals at Big Banks, stated that banks were approving twice as many small business loan requests as they did 2 years ago. They credited the Federal Reserve’s interest rate hike as a catalyst in making banks more aggressive.
The problem remains that small business lending is inefficient. To address the inefficiency, banks are now assessing this problem from two perspectives. First by adding technology, such as Finagraph, that speeds the loan approval process by connecting to a host of core banking products. Secondly is through educating and training the branch banking staff to be able to handle larger loan requests than before. By raising the skillset of the branch manager, and adding technology, banks can now be more agile and cast a wider net to capture market share.
This makes total sense. No marketplace lender is in a better position to work with a local small business than the branch banking staff. The branch manager has the unique advantage of personal contact. They know the business, the owner, the owner’s family. They might even be a customer of the business. Empowering the branch has a host of advantages for the bank itself. They have already invested in the infrastructure. Now is the time to leverage the assets and get closer to the community.
In a recent case study at Finagraph, a $5 billion bank in asset size, increased both incremental revenue and deposits by almost 2000% in two years after adding technology and training from our firm. They added over $10 million in incremental revenue, for a cost of approximately $100k. These are unheard of results that we believe revived their branch system.
The market is there and the interest of the banks is piqued. All signs are showing that the small business owner is being taken seriously. If now is a good time to start thinking about funding for the growth of your small business; you have a good chance of getting serious consideration.