Digital Lending Experiences: the Key to the Small Business Loan Market

Making up 99 percent of the American economy, small businesses are impossible to ignore as a key client base for the nation’s community banks. Yet, only six percent of small businesses use a credit union or community bank to obtain their funding. Large commercial banks and other international lending powerhouses have dominated the small business market despite receiving lower customer satisfaction ratings.

Much of that domination has come from offering digital services such as online banking and lending. According to a Radon research study, 22 percent of small businesses said they chose megabanks because they provide a better set of services and options. Large banks are leading for good reason, investing a much larger percentage of their total budget into online platforms and lending options.

Communication is Key

While community banks continue to lag behind in online banking, the fact remains that small businesses prefer to bank locally. Community bankers know the area, and are better able to serve their local customers. Small businesses that use a community bank for their financial services are more loyal and exhibit higher levels of satisfaction according to the same Radon study. The way for community banks to re-establish themselves begins with communicating these strengths.

But personal attention is not enough. Online lending is the fastest growing sector of the small business loan market. Community banks can take into that market through digital development. A majority of the small businesses today have a large digital presence, so by meeting them in their place of business, community banks can show that they understand their needs and business model. .

Better online communication starts with a clean, modern looking website that is mobile friendly. The site needs to clearly display the range of services your bank offers and demonstrate your commitment to quality service. With a strong website in place, community banks can start to appeal to more small business owners.

Convenience for the Customer

Loans from online lenders are notoriously pricier. Quicken Loans charges a .25 to .4 percentage point premium over the next best loan option. However small businesses continue to seek out these lenders because they are more likely to receive the service they need. A 2015 FED study found that community banks approved 20 percent less small business loans than these online lenders. Beyond receiving a loan, small business owners said they found that loans from traditional lenders “take too long” and are “too difficult.”

What this says is that small businesses choose a lender based on one criterion: convenience. For any business but particularly small businesses time is money, and by wasting time in a brick and mortar location, these companies lose out. With the introduction of a digital platform, community banks can promote their ability to consolidate all banking services under one umbrella, a huge convenience shift.

Acquisition Modeled From Retention

While community banks have been almost entirely shut out of the acquisition game, they have been successful at retention. Community banks and credit unions have a 91 percent lifetime retention rate for a small business, well above their larger competitors. On the other hand, while online lenders have been extremely successful with acquisition they have struggled to keep customers happy. This is where the personal attention and convenience of a community banks comes in. Community banks can focus more on their online acquisition strategy, because they already have the infrastructure established to keep small businesses happy.

Community banks already understand the challenges local business owners face and have proven they have the expertise these businesses need. All that is needed to complete the puzzle is demonstrating that they can deliver the technology and service to help small businesses grow.

×

Subscribe to Our Newsletter

If you made it this far, you should sign up for our monthly newsletter. Get our latest articles and insights delivered each month.

First Name*

Last Name*

Email*