The Federal Deposit Insurance Corporation (FDIC) conducted its Small Business Lending Survey to determine the lending practices of U.S. banks for small businesses. The survey, which included 1,200 banks, gathered information on the volume of banks’ industrial and commercial lending.
The findings reveal that large banks are more likely to use transactional methods while small banks rely on relationship lending practices. But regardless of size, they follow a core set of practices that focus on local personal interactions.
Large and small banks uses similar underwriting criteria and offer similar loan products. But small banks are more flexible in dealing with start-ups. Big banks, on the other hand, are more likely to require a minimum loan amount and evaluate business credit scores.
The survey also found that banks, large and small, accept online applications for small business loans. Banks that do not allow online small business loan applications are missing major business opportunities that can be easily solved. Online applications are time-saving, speed up the loan process, reduce labor costs and fulfill the need of target customers. Majority of millennials, which now make up the largest segment of the population, want to do everything via smart phones, even business loan applications. Banks that have not digitized their lending process should partner with fintech firms in order to have online line capabilities.