Pub. 9 2019 Issue 1

8 www.azbankers.org A RE DIGITAL LENDERS TAKING OVER THE COMMERCIAL LENDING BUSINESS? IT DEPENDS ON WHO YOU TALK TO, BUT ALL WOULD AGREE THAT THE FINANCIAL INSTITUTION’S GRIP ON THE BUSINESS OF SMALL BUSINESS LENDING IS SLOWLY LOOSENING. AND THAT OPINION IS SUPPORTED BY RECENT STUDIES CONDUCTED BY THE FEDERAL RESERVE. According to the latest Small Business Credit Survey 1 , one out of four small business borrowers have applied for funding with online sources. Conducted in 2017, the survey ranks online lenders third among sources from which small businesses apply for credit. • Large banks: 48% • Small banks: 47% • Online providers: 24% (up from 21% year previous) • Credit unions: 9% Why the shift? Commercial borrowers, like any borrower, want a process that is quick and easy. After all, the internet has trans- formed the way we do business; whether it’s a pair of socks, a set of spark plugs, an automobile, or even a vacation home, speed and ease are now table stakes with buyers and borrowers alike. Do banks meet that expectation of a quick and easy approval process? Survey says? Hardly. Small business owners in search of capital are doing what we all do; they’re going straight to their smartphones. And while speed and ease are surely reasons to shop online for a loan, there are, of course, other reasons. Take the chance of success. The Fed survey also points out that these loan applicants tend to choose a lender based on their per- ception of how likely it is that their application will be approved... and banks are not high on their list. Alternatively, online lenders merchandise their willingness to give money away – even to medi- um and high credit risks – and to do so within minutes, as opposed to days and sometimes, weeks. In addition, online lenders have less stringent collateral requirements, again improving a potential borrower’s chances of approval. Fed’s Small Business Credit Survey Sheds Light on Online Lending By Neal Reynolds, President, BankMarketingCenter.com