Aite Group finds that alternative lenders’ share of the SMB market by application is 16%, but alternative lenders’ share of the closed loan market is only 13%.
Boston, November 30, 2016 - Aite Group estimates the market for loans to small and midsize businesses (SMBs) to be US$491 billion as of 2016 and expects this market to grow to US$687 billion through 2018, presenting a significant lending opportunity for credit providers of all types. But this market also presents significant scale challenges. Once an opportunity to finance an SMB has been fielded, a costly endeavor, such a lending opportunity also requires time-consuming and costly due diligence. Stymied by such scale challenges, the banking industry has been ambivalent about lending to SMBs—so ambivalent, in fact, that banks created a market-entry opportunity for alternative lenders.
Aite Group finds that alternative lenders’ share of the SMB market by application is 16%, but alternative lenders’ share of the closed loan market is only 13%. Despite boasting of speed and convenience, these lenders’ share remains small, and many of their prospects appear to be going elsewhere after the application process.
“A potential reason for why alternative lenders lose prospects is because 10% of credit applicants were dissatisfied with the response times for their credit applications—a factor identified by SMBs as being among the most important when deciding where to close their loans,” says Aite Group senior analyst David O’Connell.
To turn more prospects into clients, alternative lenders should manage their customers’ expectations more carefully. Despite marketing campaigns focused heavily on rapid response times to credit applications, SMBs’ satisfaction levels with alternative lenders’ credit application turnaround times reveal a lack of compelling competitive advantage.
“Alternative lenders should take care not to promise turnaround times they cannot, in fact, deliver,” warns O’Connell.
Aite Group’s latest report, Lending to SMBs: It’s a Borrower’s Market, analyzes the results from Aite Group’s August 2016 survey of 601 U.S. SMBs and reveals typical credit-seeking SMB behavior, including shopping habits, attitudes about applying for debt, and overall application experience.
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Aite Group is a global research and advisory firm delivering comprehensive, actionable advice on business, technology, and regulatory issues and their impact on the financial services industry. With expertise in banking, payments, insurance, wealth management, and the capital markets, we guide financial institutions, technology providers, and consulting firms worldwide. We partner with our clients, revealing their blind spots and delivering insights to make their businesses smarter and stronger. Visit us on the web and connect with us on Twitter and LinkedIn.