The Credit Needs of Small Businesses: Can Banks Beat Nonbanks at Their Own Game?

The market for small business credit has exploded since the Great Recession, with various nonbank lenders using innovative credit decision making, digital applications, and marketing practices to carve out a large market of business borrowers previously considered too expensive to underwrite. The threat for banks is that customers obtaining financing elsewhere not only threaten potential loan revenue but also the retention of the depository, merchant services, and payments side of the relationship. Banks that are able to solve the challenges and expand their business loan capabilities — whether it’s through product development or partnership — will reap the rewards of primary bank status: a higher share of deposits, card spending, and auxiliary product usage.

Companies Mentioned: Amazon, JPMorgan Chase, Kabbage, OnDeck, PayPal, Santander UK, Square, Wells Fargo