If you were a small business owner looking for a loan, where would you first go? A bank? An online lender?
Well, businesses prefer a quick/easy application process, detailed rates and payment information, and a lender that is known and trusted. Many small to medium sized businesses around the country are looking for a great user experience when they wish to take out a loan. And because of these reasons, many online lenders win business over banks.
Banks however, are still the credit source that people feel most comfortable going to because they are heavily regulated and designed to give people the best products. Traditional banks have better credibility than online lenders who generally have high rates in exchange for quick and easy money.
According to a study by the Federal Reserve Bank of Cleveland, small business owners’ perception of online lenders lacks trust. When asked where they would turn first for funding, business owners all preferred a traditional financial institution compared to online lenders.
Participants in the study often received spam like “emails all the time” and “20 or more calls a week after I secured I secured a loan with [an online lender].” All of the participants in this study reported that they strongly disliked the persistent sales calls that online lenders make. No wonder where the persona of unreliable financial institutions and distrust in online lenders comes from.
So small business owners trust banks more than large online fintech companies. Then why do they still utilize them, creating a total of over 12 billion dollars lent to small businesses last year?
Although they are “looking for credibility and reliance” in banks, it’s not easy to deny that “lenders are more flexible with their approval process.”
Business owners want higher flexibility and an easier experience because they believe “the hardest part of running their business is managing their cash flow.” More specifically, having enough money for payroll and outstanding accounts receivables are two things that worry business owners the most. So it’s no surprise that entrepreneurs will turn to online lenders to gain access to better customer experiences that speed up to the process of getting a loan.
But what if banks could provide that same user experience to their customers, with a clean front end website that transparently displayed all of their great prices? What if banks could offer an online application form that took away all of the tedious paperwork to apply for a loans?
They would still be the trusted lenders that small businesses rely on when applying for credit. Instead of the traditional way of banking, adopting new technologies would enhance their customer satisfaction by providing a way better user experience with a faster application process, and quicker approval processing.
Essentially banks would be able to offer the same glossy front-ends as online lender with a user friendly experience for their customers, but would still being able to maintain their competitive products and trusted reputation.
For banks, this solution seems like a no brainer. Compete with online lenders and fancy fintech companies that have outstanding user interfaces and appealing websites. Every community bank or credit union with competitive products to those of online lenders should make it a goal to upgrade their technological platforms because that is what their customers want!
Increase your deal flow and customer relationships by enhancing the overall loan process of your financial institution.