New TowerGroup Research Emphasizes Need for Banks to Embrace Unique

Characteristics of Small Businesses to Capitalize on Lending Opportunities

    NEEDHAM, Mass., March 28 /PRNewswire/ -- With consumer lending,
 residential mortgages, and commercial real estate volumes declining, U.S.
 banks are quickly shifting their lending focus to small businesses - a
 segment that has been growing steadily for the past five years.
     New research from TowerGroup finds that U.S. small business loan
 balances increased at a compound annual growth rate (CAGR) of nearly 7
 percent between 2001 and 2005. In addition, small business loan volume -
 that is, the number of loans made to this sector - grew at the dramatic
 rate of 14.3% from 2001 to 2005. A graphic illustrating this data point can
 be viewed and downloaded at:
 http://www.towergroup.com/research/content/page.jsp?pageId=1522
     Small business lending is a balancing act for financial institutions,
 given the wide variations in credit needs among smaller organizations. For
 example, originating small business loans under $100,000 closely resembles
 consumer loan application processing - with underwriting relying on
 consumer credit bureau data, automated decisions, and standard legal
 documents. Lending to larger small businesses, where loan balances average
 $230,000, requires multiple guarantors, collateral, and loan covenants more
 in keeping with larger scale commercial lending.
     "Small business lending straddles the high end of the retail market and
 the low end of the commercial market, sharing some of the attributes,
 processes, and business challenges of each," said Patricia Hines, senior
 analyst in the Wholesale Banking practice at TowerGroup and author of the
 research. "Banks must better adapt to serving both ends of the small
 business spectrum. This means investing in next-generation small business
 loan origination systems that can span the continuum, as well as building
 out the right network of people and processes."
     In order to capitalize on the growth opportunities in an increasingly
 competitive space, banks will need to address the following:
     -- Invest in systems that fully automate the small business lending
        process and speed straight through processing. These systems can reduce
        costs by 30 percent to 40 percent and result in a one- to two-year
        return on investment.
     -- Participate in the Small Business Administration's (SBA) loan programs.
        In order to take advantage of these programs, banks must be compliant
        with the SBA's origination, documentation, reporting, and servicing
        requirements. Several loan origination systems support SBA lending and
        can ease the burden of compliance.
     -- Find effective ways to use data gathered during the origination process
        to cross-sell additional bank products to small businesses,
        particularly deposit and cash management services.
     -- Integrate small business loan origination across delivery channels.
        Small businesses are looking for consistent information and
        functionality from all bank channels.
     "Banks are making a stronger effort to lend to small businesses due to
 the high growth potential. However, there is a clear disconnect between
 banks and small businesses," said Hines. "Although banks find low-touch
 customer channels such as the Internet and call centers more cost
 effective, business customers often prefer personal interaction with a
 trained lending professional when discussing their credit needs. TowerGroup
 believes that banks who embrace the specific lending needs of small
 businesses will be the ones to succeed in this arena."
     Two new TowerGroup reports on small business lending by Hines are
 available to qualified members of the press for review:
     -- "Small Business Loan Origination: Spanning the Continuum"
     -- "Small Business Loan Origination: Vendors Extend Their Reach"
     To request copies or to arrange an interview with Hines, please contact
 Rachael Adler at +1.212.455.8037 or radler@cooperkatz.com. Those interested
 in subscribing to a TowerGroup research service may call +1.781.292.5200 or
 email service-info@towergroup.com.
     At TowerGroup, Hines focuses on small business banking and commercial
 lending, examining issues related to strategy, best practices, product
 management, delivery channels, and software applications.
     About TowerGroup: TowerGroup is the leading research and advisory
 services firm focused exclusively on the financial services industry. A
 respected source for trusted information and advice, TowerGroup brings many
 of the world's leading financial institutions, technology companies, and
 professional services firms a deeper understanding of the business and
 technology issues impacting their organizations. Headquartered near Boston
 in Needham, Massachusetts, and with offices in North America and Europe,
 TowerGroup serves a global client base. Visit www.towergroup.com for more
 information.
     Contact:
     Anne Green                Rachael Adler
     agreen@cooperkatz.com     radler@cooperkatz.com
     +1-212-455-8017           +1-212-455-8037
 
 

SOURCE TowerGroup

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