Independent Banker - July 2018 - 32

PORTFOLIO
How to profit from smaller
small-business loans
Lending
C
Online lending technology is making this
market more lucrative for community
banks. By William Atkinson
ommunity banks with assets under $10 billion have
almost half of the small-business-loan marketplace of
loans exceeding $100,000, but less than 10 percent of the
market for loans of less than $50,000. That's according
to RCGILTNER Services, Inc. in Louisville, Ky. According
to the firm, these smaller loans represent a market worth
$7 billion in revenue. When loans between $50,000 and
$250,000 are included, this figure balloons to $20 billion.
So why haven't community banks been more aggressive
in seeking these smaller small-business loans? Quite simply,
say those in the know, the costs associated with underwrit32
Q ICBA Independent Banker Q July 2018
ing and servicing the loans are too high, with some banks
actually losing money. Many banks' internal processes
for making these loans are not efficient and cost-effective
enough to aggressively pursue this market. This leaves it
wide open to large banks, business credit card providers
and alternative lenders, which can process these loans more
efficiently and cost-effectively.
As a result, community banks have lost almost half of
their market share-going from 32 percent to 18 percent-
of small-business loans under $100,000 to large banks and
fintechs in the past seven years, according to the FDIC.
Between 2010 and 2017, for example, fintechs experienced
a 1,700 percent growth rate, and large banks a 31 percent
growth rate, with this type of loan. Yet community banks
experienced a 21 percent decrease with these same loans.

Independent Banker - July 2018

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Independent Banker - July 2018 - Table of Contents
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