Credit unions are finding it challenging to expand their SMB lending footprint in their local communities due to the significant market share gained by non-bank lenders since the 2007-2008 financial crisis. One of the key reasons for this growth is the better technology utilized by non-bank lenders that has reduced friction and provided quicker access to funding for business owners. Credit unions historically have not focused on SMB lending and lack true subject matter expertise in this area. The traditional credit scoring system, which leverages FICO scores as a lending determinant, limits credit unions in their ability to accurately manage risk and effectively decision small business loans. Credit unions can position themselves as a better alternative to non-bank lenders for local small business owners by charging lower rates and providing a better customer experience using technology and subject matter expertise.
- Non-bank lenders have gained significant market share in SMB lending since the financial crisis due to their use of better technology
- Historically, SMB lending has not been a major focus for credit unions, leading to a lack of subject matter expertise in this area
- Traditional credit scoring systems like FICO are limiting credit unions' ability to accurately manage risk and effectively make decisions about small business loans
- Non-bank lenders charge high interest rates on SMB loans in exchange for fast access to capital, providing credit unions with an opportunity to offer a better, hands-on customer experience with lower rates
- Credit unions can compete in the SMB lending market by using loan origination technology, back-office operations for SME support, credit underwriting support, marketing, SBA lending operations support, specialized call centers, and new business credit scoring expected loss models
- Credit unions exist to serve their local communities, and SMBs are a vital component of these communities that need financial support to continue flourishing