This year a small New York fish market vendor in the Bronx finally got fed up with its large bank. They dumped them and signed up for banking services at a much smaller bank. “They were not getting the attention they used to get and had become accustomed to,” said the CEO of Signature Bank in an interview with AmericanBanker last week.
And that’s too bad for the former banking service provider of the Hunts Point fish market vendor because according to AmericanBanker.com, it’s exactly small businesses like these that are driving the recovering commercial/business loan market. In fact, two of the smaller commercial lenders in New York, Sterling Bancorp and Signature Bank, reported a significant uptick in loans from businesses that jumped ship from a larger bank.
The opportunities of letting clients jump ship have not been lost on the larger banks: Michael Fusco of Chase Manhattan, one of the largest banks in the New York area, told AmericanBanker that “we’ve made a concerted effort to grow our state’s economy by drastically increasing our small-business lending.”
The larger banks typically specialize in government guaranteed SBA loans, and unfortunately, these types of loans are not driving the recovering loan market. A major reason is the government guarantee makes these types of loans more expensive than non-SBA loans.
This is where the smaller lenders come in: “Usually our clients stand on their own and don’t need the government guarantee of an SBA loan,” said Sterling Bankcorp’s CEO.
The current shift away from the large “too big to fail” banks continues the trend first reported by the Massachusetts Bankers Association last spring when they found small community banks taking up the slack in loan supply as the larger banks were either unable or unwilling to meet new loan requests.
This trend has highlighted the role of peer-to-peer (or P2P) lenders that have appeared over the last few years. Peer-to-peer lending is the very definition of both small and community because small groups of individuals (“peers”) typically fund loans. According to Entrepreneur magazine, entrepreneurs and small business owners are increasingly looking at alternative funding sources for their businesses, and peer lenders are becoming one of the more attractive options. Bill Bartmann, a business consultant who helps businesses manage their debt and raise funds, says that if credit continues to remain tight with the bigger banks, P2P websites may become an increasingly viable option for smaller businesses along with the new community bank based loan opportunities cited by the MBA.