Small-business lending is a paradox for community bankers.
On the one hand, bankers are optimistic about their prospects courting smaller firms, noting an upswing in business activity and loan demand. Still, a number of lenders are equally worried about growing competition, ranging from larger banks moving downstream to nonbanks and credit unions.
Such views were prevalent in a recent survey of bank leaders conducted by FIG Partners in Atlanta. The firm queried nearly 60 chief executives of private and publicly traded banks with less than $10 billion in assets.
The survey's central finding a confluence of optimism and apprehension about the market made sense to Chris Marinac, an analyst at FIG Partners who supervised the survey.
"Small-business lending is a competitive business and it has been for decades," Marinac said in an interview. "It's a business where you have to pick your spots and find a space where you can be successful. [But] there are still deals to be done. The positives are out there. "
Other results surprised Marinac, including feedback that less than a third of respondents viewed Small Business Administration lending to be an "important part" of their business, or the finding that 23% of participants didn't require clients to open a checking account as a condition of receiving a small-business loan.
The overall findings are spot-on, said Ken Trautman, president and chief executive of the $209.5 million-asset People's Bank of Commerce in Medford, Ore. Troutman, who did not participate in the survey, frets about the future even though the bank's loan portfolio grew by 17% in 2014. (He projects another 10% to 15% increase this year.)
Business conditions are pretty good right now, Trautman said. Though there has been "a little bit of loosening on credit standards" by competitors, he said People's Bank "hasn't had to try and get creative" to win business.
Still, competition from large banks and nonbanks is intensifying, and Trautman predicted that the trend will soon lead to lower pricing and reduced profits. "Everyone is fighting for the same clients," he said.
Credit unions are a mounting concern for Trautman and many of the CEOs who responded to the FIG survey. Credit unions are currently more active as third-party purchasers of small-business loans, rather than as originators, Marinac said, though he noted that many of the bankers he surveyed viewed those institutions as an immediate threat.
Credit unions that compete against People's Bank are starting to hire commercial lenders away from local banks. "They're beginning to nip at our heels," Trautman said.
Trade associations representing credit unions are continuing to push for a loosening or elimination of limits on business lending. Such activity is currently capped at 12.25% of a credit union's total assets. Raising that cap would be a disaster for community banks, Trautman said.
Despite anxiety over competition, the survey seemed to point to generally good times ahead for small-business lending at least in the short term. Most survey participants reported growing portfolios. A whopping 85% of respondents said their borrowers' financial positions had improved, leading to stronger credit quality.
What is good for banks is good for small-business borrowers, too.
Richard Pickett, executive director of the East Colorado Small Business Development Center in Greeley, said he has noticed a definite uptick in the amount of credit available to his clients.
"There's definitely more money out there," Pickett said. "Banks are eager for deals."
How eager? Pickett said he is often able to schedule back-to-back meetings with several banks for clients, something that was unthinkable a few years earlier. "In 2008, when I started this job, finding banks willing to lend to a small business was a problem," he said.
Interestingly, SBA lending got a lukewarm reception in the FIG Partners' survey. Only 12.5% of those surveyed mentioned SBA loans when asked what small-business product generated the most revenue.
"I thought SBA carried more weight," Marinac said. "That was probably my biggest surprise."
Adding weight to that finding, Pickett said he has noticed an increased willingness among lenders to leave the SBA out of deals. "More are opting to take the whole thing," he said. "They are willing to take on a little more risk."