(Bloomberg) -- Almost all US banks stress “in-person and high-touch practices” for developing relationships with their small-business customers, even as about half use technology to facilitate such loans, according to a study by the Federal Deposit Insurance Corp.
In its 2024 Small-Business Lending Survey, the FDIC said most banks restrict technology use to help with regulatory compliance, data management and servicing small-business loans after they’re approved — rather than requiring small-business borrowers to complete an application entirely online.
“One of the reasons community banks are regarded as a foundation of support for their local communities is their strong ties to small businesses,” FDIC Chairman Martin Gruenberg said in prepared remarks for an industry conference Wednesday. “A core function of many community banks, small-business lending is of enormous economic importance.”
The study was a nationally representative survey that sampled 2,000 banks about their small-business lending practices, with about 1,300 responding.
It found that small and large banks take different approaches to managing the risk of lending to startups. Large banks more often rely on government guarantees, while small lenders frequently use “soft information” gleaned from meeting with applicants, the FDIC said.
The FDIC found a growing rate of bank competition with credit unions and non-bank fintechs. While small banks are more likely to compete regularly with credit unions, large banks are more likely to compete with fintech lenders, credit-card issuers and other financing companies, it found.
“There is no universally accepted definition of a ‘small business,’ but as of 2023, there were more than 33 million firms in the United States with fewer than 500 employees,” Gruenberg said, adding that these firms represent 99.9% of all employer establishments in the country, more than 46% of private-sector employment and over 43% of gross domestic product, citing the Small Business Administration.
“These numbers demonstrate how vital small businesses are to the US economy,” he said. “Small businesses thrive in no small part because of their access to credit, for which banks are a primary source.”
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