Only 10% of Banks Have a Credit-Scoring System That Can partially or Fully Automate Small Business Lending

If you thought that fintech had already largely come in and revolutionized the lending process at banks, you’d be wrong. According to the FDIC’s latest annual small business lending report, only 10% of banks have a credit-scoring system that can partially or fully automate the underwriting of some non-credit-card lending. Further, only 3% of banks use a credit-scoring system to auto-approve loans and less than 1% will auto-approve a loan of $250,000.

When it comes to fintech, “banks most commonly use fintech to help with regulatory compliance and for steps taken after loan approval,” the report says, “such as closing, performance and servicing, and portfolio analytics.”

Still, that doesn’t mean they’re terribly slow. In fact, thirty percent of banks can approve a small and simple business loan within one business day and 75% of of banks can approve one within five business days, though approvals usually happen within ten days on average.

And just because a bank’s business loan operation isn’t fully automated doesn’t necessarily mean they’re at a disadvantage competitively because banks actually tend to view the personal relationship with their small business loan customers as one of their core advantages.

“Banks use and high value branch locations and on-site visits as ways to generate and maintain small business lending relationships,” the report says. “About four in five banks define their geographic market for small business lending based on their branch footprint and, on average, their market extends 40 miles from their branch locations.”

“Very few banks allow borrowers to complete a loan application entirely through an online portal,” it adds. And that’s by design apparently. Of the banks surveyed for the report, almost half of them said they had NO PLANS to use or CONSIDER fintech in small business lending.

There’s a lot more insight in the full report that you can view here.