Banks still dominate the small-business arena, but nonbanks are gaining on them, according to a recent survey.
Maria Erickson, a research director for Payment Services Inc., says banks' traditional lock on the segment is slipping.
And nonbanks' pricing and credit availability are luring businesses to nonbanks from banks, according to survey that Ms. Erickson presented at a conference here last week.
A bank's "competition most likely is another bank," she said. But "more nonbanks are pursuing the small-business market. And while the small- business market used to be locally based, it's now also being served by out-of-state companies."
The study was based on interviews with 5,000 small businesses across the country during February and March of this year, Ms. Erickson said.
The study defined small businesses as companies with between $500,000 and $10 million in annual sales. There are 2.2 million such companies, up 75% from 1991, and they accounted for $86.9 billion in new borrowing in 1995.
Nonbanks have been chipping away at the term loan market since 1993, the survey found. In 1993 nonbanks had 1% of the market of term loans up to a year in duration, 7% for up to five years, and 5% for more than five years.
By 1995, those percentages had risen to 8%, 20%, and 30%, according to the survey.
Banks still control most of the market in business lines of credit and mortgages, according to the survey. But nonbanks romp all over the depositories in other areas.
For example, nonbanks control a 62% share of equipment financing, compared with 41% for banks, the study said. And nonbanks have a 56% share of inventory financing, leaving banks with 44%.
Ms. Erickson said that small businesses on the whole plan to increase their borrowing in 1996, mostly to expand facilities. But many will be shopping around for new lenders.
For instance, while 72% of all businesses that borrow plan to stick with their existing lender this year, 16% will seek a change.
But the fastest-growing companies are being more choosy. Fewer than 64% of businesses with big expansion plans will stick with their current lender, while 28% will go shopping.
Companies seeking a new credit provider look for speedy approval and low rates, the survey found.
Loan price was the biggest incentive, with 33% of respondents citing it as the most important. Speed of approval garnered 17%. The third driver, with 13%, was "willingness to work with us."
Survey respondents indicated that commercial finance customers are more price-oriented and less concerned with relationships than bank customers.
For instance, 64% of entrepreneurs who sought credit from a financing company cited better rates as their motive, compared with 48% for bank customers, according to the survey.
Meanwhile, 39% of finance company customers cited "willingness to work with us" as important, and 30% pointed to credit availability, the survey said.
Companies wanting to finance equipment most likely seek commercial finance companies than banks, the survey found. Fifty-six percent of respondents gave that as their reason for going to a nonbank. Only 13% of respondents went to a bank for such financing.
