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Wednesday, October 28, 2015

Community Banks Down $4.5B in Small Business Loans While PayPal & Online Lenders Up $10B

PayPal, which provides loans up to $85k to small businesses based on their activity through PayPal, announced today that they now have, from a standing start two years ago, $1 Billion in small business loans.  They generate these with decisions in minutes, as do other online lenders who are doing $9 Billion a year in small business loans.  These non-bank channels are growing exponentially (PayPay doubled in volume in the last year) while community bank (banks under $5 Billion) C&I loans under $100k fell by $4.5 Billion, or 15%, in in the last four years, as shown by the chart below.

Source:  FDIC, PayPal, Harvard Business School Small Business Loan Study

Small business is the lifeblood of community banks, and while they do a great job of serving their checking and deposit needs, loans under $100k which average $20k have not been profitable for efficient for community banks to provide.  Studies show that full costs to market, underwrite, and risk monitor loans cost $2,000/loan a year or more, which is more than the interest earned on the average $20k loan.  The risk for disruption for loss of customer relationships and eventually the deposit relationship to online digital providers is a clear and present danger!

The good news is that community banks can use their own digital lending platform like Business MinuteLender to market, underwrite, delivery and risk monitor small business loans under $100k all online in minutes for just a few hundred dollars per loan.  They have a ready market in their business checking accounts where nearly 80% of accounts have no loan relationship with the bank, but do have loans elsewhere.  The digital platform not only more efficiently delivers loans to this segment you do now, it also protects against new competition.  Most importantly, it brings in new revenue from your existing checking customers.  It is time you set up a demo and pro forma review.


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