The Federal Deposit Insurance Corp. (FDIC) released its 2024 Small Business Lending Survey results, offering a comprehensive look at how U.S. banks serve the credit needs of small businesses. The survey covered the lending practices of more than a quarter of the nation’s banks, with a focus on competition, geographic reach, and the integration of financial technology.
During the 12th Annual Community Banking Research Conference in St. Louis, FDIC Chair Martin Gruenberg stressed the ongoing significance of relationship-based lending in small business financing.
“From the smallest to the largest banks, small business lending is generally underwritten and approved by people,” Gruenberg said. “In this sense, small business lending at banks is one of the forms of lending that has remained the most consistent and traditional in how it is conducted. This survey also affirms that the community banking model of small business lending remains highly competitive in today’s financial market, and is still vital for our communities.”
The survey results suggest although roughly half of U.S. banks are using or considering using fintech third-parties for small business lending, these types of partnerships are mainly utilized for regulatory compliance and data management purposes. Personal relationships between banks and borrowers continue to be central to the small business lending process, respondents indicated. Relatively few banks allow small business loan applications to be completed entirely online, and remote communication methods – such as via email or video conferencing – are typically used to supplement, rather than replace, in-person interactions.
Branch locations and face-to-face visits remain critical for generating and maintaining relationships with small business borrowers. The survey indicated most small business clients are located near a bank’s branch locations, reinforcing the importance of community presence in small business lending.
The survey respondents provided insight about the distinct approaches taken by small and large banks in the lending process. For smaller loans, large banks tend to rely heavily on quantitative data from credit bureaus, while small banks focus more on qualitative, relationship-based information. Approval times for small loans are faster at large banks. Many institutions provide decisions within one-to-five business days. Nearly all banks provide loans of up to $1 million to small businesses, and about half offer loans of up to $3 million.
When it comes to start-up lending, large banks are more likely to use government guarantees, such as those from the Small Business Administration, to mitigate risk, according to the survey results. In contrast, small banks typically rely on soft information gathered from personal meetings with applicants.
The survey also pointed to increasing competition with credit unions and non-bank fintech lenders. Small banks frequently report competing with credit unions, while large banks face competition from fintech lenders, credit card issuers, and other financing companies.