big banks small biz

Large banking institutions are changing the way they respond to small businesses. In an effort to improve their image in the wake of the Great Recession and reclaim business lost to other types of lenders, big banks are focusing on how they can help entrepreneurs with their small business startups.

If you can’t beat ‘em, join ‘em

“Big banks are helping small businesses by teaming up with alternative lenders that specialize in providing fast, short-term loans,” says finance specialist Priyanka Prakash of FitBiz Loans, a loan search platform for small business owners and entrepreneurs.

A survey by PayNet showed that, between 2009 and 2015, the amount of capital offered by banks to small businesses declined 15 percent. During the same time period, alternative lenders increased their market share from 10 percent to 26 percent and it continues to grow.

“Banks are troubled by this trend and don’t want to lose access to small business owners, so I think we’ll see them piggyback more and more on the backs of small business alternative lenders,” explains Prakash. “Small business owners benefit from this cooperation because more options mean better rates on loans.

“Initially, banks treated alternative lenders as rivals, but as banks have lost more and more business to them, they are seeing the need for cooperation and partnership,” she continues. “Last year, J.P. Morgan teamed up with Chase and Lending Club partnered with Citigroup—partnerships aimed at providing funding to underserved small businesses or small businesses that are unable to get a bank loan.”

Take a look at some of the businesses making use of this shift; if you’re a business owner yourself, maybe you can get in on them:

Mission Main Street Grants

Tilit Chef Goods provides culinary professionals with some of the best coats, pants, aprons, and accessories in the industry. This small business was a 2015 recipient of Chase’s Mission Main Street Grants, an award that is helping partners Alex McCrery and Jenny Goodman take their business to the next level.

“Our small business was awarded a grant of $100,000 allowing us to ramp up much-needed inventory and expand our showroom and workshop space,” says McCrery. “Chase has been behind us in other ways, including sending us to a seminar at LinkedIn for marketing education.”

LinkedIn is the premier sponsor of Mission Main Street Grants which, this year, will award each of 20 small businesses a $150,000 grant from Chase, a trip to LinkedIn headquarters for a webcast seminar, and a toolkit, which includes guides on marketing and publishing on LinkedIn.

Goldman Sachs 10,000 Small Businesses

A $500 million investment funded by Goldman Sachs, 10,000 Small Businesses, connects startups with business education, access to financial capital, and business support services that are designed to remove barriers to growth and give young companies a few more arrows in their financial quivers.

The program has committed $200 million toward scholarships, faculty training, and technical assistance at community colleges and business schools. The remaining $300 million is dedicated to increasing the amount of capital that is available to small business through a combination of lending and philanthropic support to community development financial institutions (CDFIs).

The program also provides business support services in the form of partnerships among national and local business organizations, as well as professional services firms, to help small businesses make the most of their newly acquired financing and management training.

The Finance Collaborative

A collaboration between Goldman Sachs and the Opportunity Finance Network (OFN) has given rise to the Finance Collaborative, which provides “24 mission-driven small business lenders with an intensive two-year program of peer learning, training, and technical assistance.”

The new program will address the decrease of mainstream finance serving small businesses and make responsible, affordable credit more readily available. The Finance Collaborative, according to the website, “…builds the capacity of CDFIs and other mission-driven lenders to deliver responsible and affordable loans to small businesses and entrepreneurs across the nation.”

OnDeck Capital Inc.

Experts with The Wall Street Journal say that OnDeck Capital, Inc. is “the clearest sign yet that large banks are choosing the path of embracing up-and-coming lenders rather than facing off against them.”

Launched by Chase in 2007, OnDeck combines a “passion for Main Street with cutting-edge technology to evaluate businesses based on their actual performance, not personal credit.” Traditionally, lenders look only at the personal credit scores of small business owners to make loan decisions. OnDeck also focuses on the businesses themselves, which leads to significantly higher approval rates.

The process sounds quite simple: Small businesses apply online or by phone, receive a decision in minutes, and can have funds in hand (via Automated Clearing House (ACH) or wire) in as little as 24 hours.

The Ink Credit Card

Lisa Chu owns Black N Bianco, which sells adorable tuxedos and formal wear for babies and children. “Big banks have been stepping up their connections with small business by making loans more affordable and by offering additional financial aid assistance,” says Chu. “Chase recently relaunched Ink . . . the card offers small business owners a chance to build up credit while offering supportive business rewards.”

“Big banks see an opportunity to utilize the sophisticated underwriting algorithms used by alternative lenders,” says Prakash. “Big banks still rely primarily on credit score to evaluate business owners’ credit risk. Alternative lenders use multiple data points, such as business revenues, social media data, and Better Business Bureau ratings.”

To reclaim their piece of the action, big banks are using their partnerships with alternative lenders to get in on the technology and service-oriented techniques that the alternative lenders know so well.