About half of all U.S. banks were using or considering using financial technology in their small business lending process, according to a report issued Wednesday by the federal insurer of bank deposits.
However, the report by the Federal Deposit Insurance Corp. (FDIC) stated, the use of technology was largely limited to help with regulatory compliance, data management, and servicing small business loans after loan approval. It asserted that nearly all banks emphasized “in-person and high-touch practices for developing relationships with their small business customers.”
The 2024 small business lending survey report (SBLS), but conducted in 2022, also reported that the most banks make small business loans of at least $1 million. Half of all banks make loans up to $3 million to small businesses, the report stated. In addition, the banks generally retain the risk of small business loans on their balance sheets, the report stated.
The FDIC said other key points in its report included:
- Bank competition with credit unions and non-bank financial technology companies (FinTechs) appears to be growing. Small banks are more likely to compete regularly with credit unions, while large banks are more likely to compete regularly with FinTech lenders, credit card issuers, and other financing companies.
- Small and large banks emphasize different types of information when making small business loans, particularly smaller loans. Small banks use more “soft” or difficult-to-quantify underwriting information gathered through relationships than large banks. Especially for smaller loans, large banks tend to focus more heavily on using “hard” quantitative information from credit bureaus when evaluating loan applications.
- Large banks are faster at approving small loans. Three-in-ten banks, including more than half of large banks, can approve a small and simple loan within one business day. Three-in-four banks can approve a small and simple loan within five business days; three-in-four banks approve their typical small business loan within 10 business days.
The FDIC said the SBLS is a nationally representative survey that asks banks about their small business lending practices. The sample size was 2,000 banks (about a quarter of all banks), which 1,300 bank responded to (68%).
FDIC Issues 2024 Small Business Lending Survey Report