Are Small Business Borrowers Bank-Loyal to a Fault?

This article first appeared in deBanked.

Applying for a small business loan is easier than it’s ever been. Online lenders have streamlined the process, brought it all online and whittled down approval times. Still, the majority of small business owners still think a bank is the only place to get a loan. They’re four times more likely to seek funding from banks than any other source; more than 80 percent of funding applications go to traditional financial institutions.

Big banks’ small business loan approval rates have dropped sharply thanks to tightened regulations and compliance costs post-Great Recession. Because the transaction costs on a $100,000 loan are roughly the same as a $1,000,000 loan, banks are passing right over small business owners seeking smaller amounts. And since the majority of small businesses want loans smaller than $100,000, they’re not being served by the institutions they turn to first. Read More

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