Pub. 9 2019 Issue 1

9 ISSUE 1. 2019 And while online lenders are making in- roads, it’s never too late to take the neces- sary steps to hold onto your lucrative com- mercial lending business. It can start, for example, with letting your customers know that this business is important…to you and to them. Market your products and services so that potential borrowers are aware of the benefits your products offer versus the pitfalls of those offered by online lenders. Who are currently the bigger players in the online lending game? Kabbage has provided over $5 billion in credit to small business people — $1 billion of that applied for during non-banking hours. Square , run by Twitter, Inc. and now operating under the mantle Square Capital, has extended more than $3.5 billion in loans and cash advances to small businesses since its inception four years ago. PayPal Holdings, Inc. has extended more than $6 billion in small-business loans since 2013, using data it collects from the processing of payments for Internet retailers. And while online lenders are making inroads, it’s never too late to take the necessary steps to hold onto your lucrative commercial lending business. It can start, for example, with letting your cus- tomers know that this business is important…to you and to them. Market your products and services so that potential borrowers are aware of the benefits your products offer versus the pitfalls of those offered by online lenders. Real speed v. perceived speed Small business owners often need cash in a hurry, so loan approval times are critical. Online borrowers appeal to this urgent need with “approval in just minutes” marketing claims, and often, this simply isn’t the case. Get the message out there that “instant approval” is sometimes just a carrot that lenders dangle in order to earn high-in- terest loan business. Lack of transparency What small business owners know about borrowing is gleaned from their experience as consumers. But not all forms of online credit behave exactly like consumer credit nor traditional business loans. One variation called a “cash advance” may be paid off by the online lender taking a piece of every customer credit card swipe, for exam- ple. In addition, online lenders tend to go light on disclosure tables, leaving borrower’s in the dark about repayment terms, fees, and very often, high interest rates. When this information is available, it is often made available only after the borrower has formally applied for the loan or been asked to provide sensitive information that many are reluctant to give. Yours is an institution they can trust Trust is everything. While speed and ease are certainly important considerations to small business borrowers, when asked, the major- ity admit that online lenders just don’t have the trust that banks do. The Federal Reserve research indicates that for many small business owners, doing business with an institution they know and trust outweighs other factors. To feel more secure with an online lender and sharing financial data, borrowers are seeking out reviews and endorsements for validation. They’re still not 100% comfortable, however, with providing sensitive financial information to an online provider. There is also the fear that information that’s provided, such as company size and contact information, could end up in the hands of unscrupulous entities, or lead to unwanted solicitations for unwanted products and services. Market your strengths While you may not offer a digital lending experience that can compete with online lenders, you’re not without a story to tell; and it’s a compelling one. Make the most of your relationships. Trust and transparency can outweigh accessibility and ease. Remember, small business borrowers are open to choices. It all comes down to convincing them that your institution is that right choice. w 1 https://www.fedsmallbusiness.org/survey/2018/report-on-employer-firms