As the Senior Vice President of Sales at Biz2X, I manage a team of Account Executives and Business Development professionals across North America, focusing on our SaaS SMB Loan Platform for banks and credit unions. My career spans over two decades on Wall Street, including leadership roles at Goldman Sachs, Bear Stearns, and UBS, as well as heading sales at two FinTech companies in the U.S. Syndicated Credit Market. This extensive experience provides me with a unique perspective on the evolving landscape of small business lending (SMB) and the pivotal role credit unions can play.
The Importance of Small Business Lending for Credit Unions
Small business lending is a critical component of the U.S. economy. According to the U.S. Small Business Administration, there are 33 million small businesses in the United States, accounting for 99.9% of all U.S. businesses. These enterprises are a significant engine of economic growth, employing nearly half of America's private sector workforce and contributing 44% of the gross domestic product.
The demographics of small business owners are also changing. Gen X now owns 47% of small businesses, compared to Boomers who own 40%. This younger generation is more inclined towards online lending options, presenting an opportunity for credit unions to expand their reach. However, many small businesses still struggle with access to funding, which is a primary reason for their failure.
The Competitive Landscape of SMB Lending
FinTechs, neo-banks, and other non-traditional lenders are rapidly gaining market share in the SMB lending space. These online lenders are often more attractive to small businesses because they can make decisions more quickly than traditional banks and credit unions. A 2022 survey by the Federal Reserve revealed that among SMBs who don’t use banks or credit unions, 21% believe they "don’t work with" small businesses. Furthermore, a difficult application process and long wait times for credit decisions are significant deterrents.
The bank failures of 2023 underscored the value of stable, long-lasting relationships during times of financial stress. Credit unions offering a diversified product suite, including SMB lending, can increase customer retention and create more durable deposits. Yet, credit unions have historically focused on consumer loans like credit cards, student loans, vehicle financing, and real estate -- only 26% offered any type of commercial loan in 2023.
Embracing Digital SMB Lending Platforms
To remain competitive and capitalize on the growing demand for SMB loans, credit unions must adopt digital SMB lending platforms. These platforms reduce customer friction, leading to more completed loan applications and higher funding rates. They speed up decision times by reducing manual tasks and touchpoints, and they eliminate internal inefficiencies, allowing credit unions to scale economically while reducing operational costs.
Digital platforms also reduce portfolio risk through multiple third-party integrations, bank statement analysis, and AI-driven decision-making tools. By diversifying their loan portfolios to include SMB loans, credit unions can decrease their reliance on commercial real estate loans, thereby mitigating risk.
The Need for Technological Integration
The integration of digital tools is crucial for modernizing credit union operations. Advanced loan origination systems can automate key steps from application to approval, making the lending process more efficient. Leveraging data analytics and machine learning helps tailor loan offerings to individual member needs, enhancing the overall customer experience.
Innovation is essential for credit unions to thrive in the competitive financial landscape. By embracing new technologies, credit unions can streamline lending processes, enable faster decision-making, and reduce manual tasks. This digital transformation will help attract and retain a broader membership base, increase deposits, and improve the "stickiness" of these deposits by offering multiple touchpoints and products.
Why Now?
Starting the process of implementing a digital SMB lending platform takes approximately 12 months, including internal evaluations, decision-making, and implementation. While high interest rates may currently hinder lending growth, rates will eventually come down. Credit unions that position themselves to be ready to lend to SMBs as rates decline will have a significant competitive advantage.
Waiting to start a digital SMB lending platform process will put credit unions behind those with the foresight to be prepared as the lending market expands rapidly. Now is the time for credit unions to act, ensuring they are ready to meet the growing demand for SMB loans and maintain their competitive edge.
Conclusion: Seizing the Opportunity
Small business lending presents a tremendous opportunity for credit unions to diversify their portfolios, strengthen member relationships, and drive growth. By leveraging digital SMB lending platforms and embracing technological innovation, credit unions can streamline their operations, reduce risk, and enhance the customer experience. As the landscape of commercial lending continues to evolve, credit unions that adapt and innovate will be well-positioned to seize the opportunities ahead and achieve long-term success.
