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Relationships and Branches: Still Important in Small Business Lending
Monday, August 14, 2017 6:40 AM

How Small Businesses Choose a Lender

Doug Foister, Vice President of Research, Cornerstone Credit Union League

S&P Global Market Intelligence recently polled 450 small businesses that had taken out a loan in 2016. The research identified the primary reasons the small businesses chose the lenders they did and how they initiated their loan application process. The findings confirm that, while the digital revolution continues to alter the lending paradigm in profound ways, lending relationships and physical branches remain extremely important to small business borrowers.

The researchers remind us that as e-document signing and online identity verification continue to progress, more and more lenders will adopt a fully digital process. And the survey verifies that this matters to borrowers. As you can see, fully one-fourth of the respondents identify a convenient application process as a primary factor in their selection of a particular lender, while another 17 percent cite speed of funding.

Still, more than six out of ten respondents cite a prior relationship with the lender as the most influential factor. Also important to note

Loan Application Process
is that positive word of mouth and brand image are significant determinants of borrower choice; 44 percent of respondents cite positive online reviews or a recommendation from someone else, and 25 percent attribute their decision to the brand name of their lender.

While a prior relationship emerges as the single most important factor in choosing a borrower, other functional aspects of the loan process are strong considerations: competitive rates is a primary reason for 35 percent of respondents, flexible terms or repayment options for 27 percent, and the ability to obtain a larger loan for 16 percent.

Importantly, a majority of the small businesses (62 percent) started their loan application process by visiting a branch in person. Online applications comprised the next most popular method of applying, with 28 percent using this channel to initiate their application. The clear implication of this aspect of the research is that if financial institutions, including credit unions, want to stay ahead of the curve, they will likely discover that both branches and digital channels are integral to successful lending.