Community banks waking up to the potential of small business lending opportunities

Community banks stand to benefit from both a competitive and profitability standpoint should they decide to shift their lending strategies to focus more on small-and-medium-sized businesses, according to new research commissioned by banking technology provider Amount and produced by Cornerstone Advisors.

“Banks are increasingly concerned about the decline in commercial real estate office renewals and the slowing of mortgage volume coupled with the increase in interest rates.”

The study found that while community banks in recent years have shifted some priorities to SMB lending, they continue to lose ground to specialized fintechs and major financial institutions. The firm also noted how 2020’s Paycheck Protection Program (PPP) did not have a long-lasting impact on small business lending. While PPP increased the Small Business Administration lender pool from 1,300 to more than 4,700 banks and credit unions, fewer than 600 institutions have made small business lending a priority.

“Community banks have an incredible opportunity in front of them to reach new small business customers and protect their standing and reputations in the communities they serve,” said Amount CEO Adam Hughes. “What remains to be seen is which of these banks will be willing to make the investments in their people, products and technology to keep pace with fintechs and larger financial institutions that have stepped up to fill the gap in recent years.”

“Banks are increasingly concerned about the decline in commercial real estate office renewals and the slowing of mortgage volume coupled with the increase in interest rates,” said the author of the report, Cornerstone Advisors Senior Director John Meyer. “To compensate for the potential loss of business, loans of less than $1.5 million to small-to-medium sized business become attractive to banks.”

Key findings from the report:

• 56% of bankers cited small business loans as a high priority, virtually equal to the percentage listing commercial and industrial (C&I) loans as a priority.
• 62% of small business owners surveyed planned to borrow an average of $2 million over the next two years.