Study Shows Small Business Loan Demand Highest Since 2012

A study released today reveals that American small businesses are eager to take business loans, with 48% planning to take out a loan in the next year, the highest level of demand since 2012. The study, called “Gimme Credit: Faster, Simpler, Safer Credit Main Street America,” was conducted by PayNet, which provides small business credit data, and Raddon, a research provider to financial institutions.

According to the study, almost 65% of small businesses anticipate an increase in sales, the highest percentage in over 14 years. And 43% of small businesses have overall confidence in the economy.

“Small businesses are in full-on growth mode,” said PayNet President William Phelan. “They’re looking to banking partners for reasonable capital infusions, but are discouraged by slow reviews, impersonal processes and denials. This creates a huge opportunity for nimble community banks, credit unions, and alternative lenders to fill the void.”

Already, some larger banks like Chase and PNC have partnered with OnDeck’s ODX to enhance speed and fill this void.

Still, small business loan demand is often met with uncertainty from banks that remain wary of lending to small businesses in the wake of the financial crisis, according to the study. But Bill Handel, Chief Economist at Raddon, believes that lenders can change their ways, while still being fiscally responsible.

“It’s a recurring cycle,” Handel said. “Cumbersome underwriting practices increase the likelihood that lenders are either unwilling or unable to extend favorable terms to small businesses, which in turn discourages applications. Fortunately, lenders can take steps to improve their efficiency and profitability in this area.”

What are some of these steps?  The study recommends the following:

• Segment applications by loan request size and reviews by loan risk profile.
• Deploy technology to assist in preparing applications, collecting data, and analyzing the business/loan.
• Optimize procedures by leveraging industry intelligence to improve their “decision engines.”

Todd Stone was a reporter for deBanked.