AI-Enhanced Small Business Lending: A Blueprint for Community Lender Growth
Small business (SMB) lending, particularly SBA loans, presents an emerging opportunity for credit unions and community banks seeking to boost profitability. The market size for SMB lending has surged, driven by rising entrepreneurship, decreasing interest rates, and government incentives. Despite this growing opportunity, SMBs remain critically underserved, with more than 77% of small business owners reporting capital access challenges. These challenges are especially acute for loans below one million dollars, which comprise more than 90% of small business owner financing requests.
One critical action for lenders seeking to unlock growth in this segment is partnering with Fintechs to enhance the efficiency and scalability of their operations. However, embracing technology and automation does not replace the vital role of relationships and trust-building in the lending process. Lenders that combine fintech capabilities with an enduring focus on the relationships at the heart of community banking can create a powerful, high-tech, and high-touch experience that drives long-term growth and adds depth to their SMB lending strategy.
The Changing Landscape of SMB Banking
The SMB banking landscape is undergoing a competitive transformation fueled by the growth of online lenders and business owners’ evolving expectations. Today's entrepreneurs demand more than just an online lending experience; they seek intuitive, user-friendly workflows that help them quickly and easily complete loan applications.
Digital-first providers and Fintech lenders are already meeting these expectations by offering unparalleled speed and convenience in SMB lending. To compete, community lenders must adopt similar capabilities, either through in-house solutions or partnerships with Fintech providers, to create comparable digital experiences that are now table stakes.
Community banks and credit unions can set their institutions apart by complementing exceptional digital experiences with tailored small business support that establishes trust with small business customers. By delivering intuitive digital capabilities and increasing the impact of their customer relationships, community lenders can meet the immediate needs of SMBs and position themselves to support their long-term success, creating a win-win for lenders and borrowers.
Creating Value Through Intelligence-Driven Advisory
Strategic partnerships with the right Fintech companies create new opportunities for relationship-based lenders to win in this market. The most critical technology for lenders looking to compete in the SMB lending space is Loan Intelligence Systems (LIS).
A LIS functions as an AI-powered intelligent intake platform that enables lenders to deliver seamless experiences for small business customers, reduce friction in the application process, and provide surface insights from application data.
For lenders, a LIS enhances efficiency and grows loan volume while surfacing the benchmarking and small business finance insights their customers need to make better decisions. This data-driven approach allows lenders to deploy relationship managers as strategic advisors whose insights help SMBs build comprehensive financial strategies, manage risk, and ensure the long-term sustainability of their small businesses. Blending advanced analytics with personalized advice empowers lenders to extend their value beyond financial products and become integral to their client’s success, fostering deeper relationships and securing long-term loyalty.
Community institutions using a LIS can combine data from applicants, third-party providers, and cash flow patterns into actionable business intelligence that helps lenders tailor financial products and surface cross-selling opportunities. Small-dollar loans can be scored to streamline application processes and timeframes. At the portfolio level, lenders can use aggregate trends to develop specialized programs tailored to the unique needs of different SMB segments. Additionally, data-driven application processes give lenders the insights they need to refine underwriting criteria, identify underserved segments, nurture ineligible applicants, streamline loan processes, and adapt their product mix to meet evolving small business needs. These insights cultivate future customers while laying the foundation for an enduring relationship based on transparency and trust.
Strategic AI/ML Technology Adoption: Where to Start?
Lenders looking to gain an edge using AI-based financial technologies must prioritize the most painful parts of the small business lending process: loan application processing, document verification, and initial risk assessment. Community lenders focusing on addressing these problems mitigate the two most common complaints from SMB borrowers - speed and difficult application processes - while winning back time for relationship building.
Once lenders provide an intuitive and efficient digital application experience, they must ensure their customer-facing relationship managers are equipped with intelligent real-time analytics to provide business insights, industry benchmarks, and product recommendations during client meetings. This enhances the advisor’s ability to provide tailored guidance and improves the quality of every customer touchpoint without replacing the crucial human element while removing the transaction and administrative burdens from the lending process.
Full automation should be reserved for repetitive back-office tasks such as data entry, document processing, and compliance checks. This frees up valuable human resources, enabling staff to focus on strategic areas where human decision-making is inimitable, like complex credit decisions and advisory support. This balance of automation and human touch allows lenders to create a more efficient, effective, and personalized lending experience for SMBs.
Community banks need to adopt new technology solutions that amplify authentic human approach. For example, an LIS gives the bank real intelligence to scale personal service while meeting modern lending demands without throwing more people at the problem.
- Marc Rehberger, SVP, Sr. Managing Director,
Head of Tech Enabled Banking at Customers Bank
Looking Forward: Building the Modern Lending Organization
Success in SMB lending requires a strategic balance: leveraging AI to automate routine tasks, streamline small loan programs, and generate insights, while empowering relationship managers to deliver high-value advisory services. Lenders who integrate digital efficiency into relationship banking unlock new market opportunities and more profitable SMB portfolios while outcompeting online lenders that cannot cultivate equivalent degrees of trust.