Four Small Business Lending Trends to Watch

 Author: Terry Renoux, TRenoux@jackhenry.com

Lending activity across the U.S. is improving. Slowly … but improving nonetheless. Visits to partner banks in the western U.S. over the past couple of weeks indicate that businesses are becoming more optimistic about their ability to grow.

According to bank partners, the specific segments that are seeing growth are small manufacturers, transportation, and businesses with ties to the energy sector. The agriculture industry was also noted as a stronger segment right now due to the current condition of this year’s crop forecast. National surveys show that only 20 percent of bankers believe small business lending will stay the same in 2013 as compared to the last two years. An overwhelming majority, more than 60 percent, say they believe lending will improve; one-third of those lenders believe it will increase dramatically. Results from this same survey suggest that three out of four U.S. bankers are planning to aggressively pursue small business lending in the coming year.

Here are a few specific trends that will help you stay one step ahead of your toughest competitor:

1. Technology – Technology has become increasingly important to small businesses, allowing those businesses to increase efficiency and remain competitive. Online platforms are a must for time savings and increased efficiency. Online bank sources and non-bank competitors are taking advantage of these platforms and making it easy even for your better prospects to deal with them instead of the traditional bank sources.
2. Alternative lending loan types and sources – The days when all loans fit into traditional commercial and industrial (C&I) buckets are gone. Alternative lenders are creative in both the types of loans and the terms they offer. They also are often flexible enough not to turn down a borrower that you have a great relationship with and who wants terms not commonly found in traditional C&I. Partnering up with an alternative lending source adds an important arrow in your competitive quiver.
3. Social media – Social media are not only more important in our personal lives, but they are now the bread and butter of many emerging and growing small businesses. Influencing factors include the JOBS Act (Jumpstart Our Business Startups) which allows small businesses access to up to $2 million in capital for underwriting their own IPO without SEC filings.
4. SBA – Volumes moving through the Small Business Administration (SBA) have only been stronger than 2012 one time in the SBA’s 59 year history. You have to learn to work with and around the SBA.  

In light of the long-term recovery plan that will be needed to come out of the shadow of the government shutdown, now is the perfect time to prospect for new borrowers.

What’s your story? Has your FI experienced any of these small business lending trends?

*Source for survey data-2012 Banking Trends Outlook Survey by Omega Performance.