Community Banks Proven Ill-equipped for Large-scale Small Business Lending

ATLANTA, May 5 /PRNewswire/ -- FTRANS, a leading provider of accounts receivable and credit management solutions, and Greenwich Associates, the premier strategic consulting and research source for the financial services industry, released a report today that shows community banks have significant structural challenges to overcome before they can adequately increase small business lending.

The report found banks are suffering from a lack of experience with commercial and industrial (C&I) loans – the loans typically used for financing small-to-medium sized businesses. Bankers have focused almost exclusively on commercial real estate (CRE) loans since the real estate boom in 2005 and lack the skill set needed to process C&I loans. Additionally, the report found community banks often have decentralized, outdated systems, meaning they lack the internal structure needed for maintaining the credit approvals, underwriting and monitoring necessary for executing C&I loans at a large scale.

"Despite aid from the federal government and pressure from regulators, community banks simply do not have the tools they need to effectively begin lending to small businesses in the near future," said Dan Drechsel, CEO of FTRANS. "At FTRANS, we empower our bank partners to lend to SMBs by providing them with the organizational foundation and transparency they need to effectively process loans for small businesses."

Data from the FTRANS/Greenwich Associates report showed that 86 percent of participating banks said they are working to diversify their portfolios away from commercial real estate (CRE) and toward C&I lending.  However, data from the FDIC showed that as a group, these banks decreased their C&I lending by 5.77 percent in 2009.  Nationally, C&I lending also decreased 8.5 percent from 2008 to 2009. According to the study, however, most banks are making it a priority to increase C&I loans in 2010. Participants projected C&I loans will make up approximately 24.7 percent of their loan budgets this year – a 2.2 percent increase from 2009.

"Community banks are finding themselves in a situation where they are expected to increase lending to stimulate the economy and at the same time tighten standards and rein in balance sheets to avoid lending to risky borrowers," said Ronald Balmer, a consultant for Greenwich Associates. "In order to successfully create new loans for SMBs, banks need to put processes in place that allow them to safely and efficiently judge the creditworthiness of customers and accomplish both tasks from the beginning."

Key findings from the FTRANS/Greenwich Associates Report include:

• 86 percent of participating banks said they are working toward increasing C&I loans in general; however, banks have consistently fallen short of C&I lending goals because of structural roadblocks
• Participants expect a decrease in CRE loans for 2010 but a lack of talent with experience in C&I lending is preventing a sudden shift from real estate loans to small business lending
• Participants forecasted C&I loans will make up 24.7 percent of their loan portfolios in 2010, up from 22.5 percent in 2009
• Community banks need centralized internal systems to adequately process credit approvals, underwriting, risk management and monitoring as well as analyze borrowers' accounts receivables and inventories

FTRANS' bank partners use FTRANS to facilitate open lines of credit with small-to-medium sized B2B businesses in a variety of industries. With FTRANS, banks are able to view accounts receivable information in real-time and can therefore decide which customers are credit-worthy up front. FTRANS enables banks to accept accounts receivable (A/R) as a safe form of collateral, enabling them to grant individual, asset-based lines of credit so SMBs can sustain their businesses and grow.

The Greenwich Associates/FTRANS report can be downloaded and read in full here: http://ftrans.net/ftrans/ResourceCenter/GreenwichAssocwhitepaperregistration/tabid/311/Default.aspx

Methodology

Interviews were conducted by phone at the end of 2009 with 18 banks in the United States. Banks with assets of $2-30 Billion were interviewed about their asset composition and their current and expected loan portfolios.

About FTRANS

FTRANS Corp., located in Atlanta, GA, provides innovative technology solutions for businesses and financial institutions.  We provide a complete accounts receivable and credit management solution which enables businesses to operate more efficiently and with greater access to capital.  From payment matching and account reconciliation to credit approvals, access to capital, and collections - FTRANS has the tools businesses need to achieve superior business results. 

SOURCE FTRANS Corp.