The Reality of the Market for SBA 7(a) Lending: “Plenty of Room for Growth, But a Need for Targeted Marketing”

As experienced SBA Lenders know, the 28 million Small Businesses nationwide is not the actual size of the market for 7(a) Loans. It is much smaller because only 10% of Small Businesses can qualify for an SBA loan on both an eligibility and credit worthiness basis. Accounting for these this factor and several others, a market size of roughly 1.5 million for SBA 7(a) Lending seems more realistic - smaller, but still large enough to support the future growth of 7(a) Lending.

In 2018 more than 60,000 small business were financed through SBA Programs. While it was a highly successful year, from another perspective it represents only 3% of the potential market. There is plenty of room for growth!

In our view, many Community and Regional Banks have the greatest potential to grow their SBA Programs by identifying and developing the growth potential of their local markets. To realize this growth, we believe Targeted Marketing Programs are needed.

Our Program, SBA Market Insights, provides Community and Regional Banks the key element of all successful targeted marketing programs: the capability to identify SBA Loan Prospects in their markets with a high probability of becoming a funded loan.

These are High Value SBA Prospects because they have these characteristics:

  • They meet SBA Eligibility and Creditworthiness Qualifications

  • They have a low probability of defaulting on loan payments

  • They operate in one of the top 20 industries accounting for 76% of all 7(a) Loans

  • There is information on them readily available to evaluate their business and credit profile

  • There is current, detailed contact information on them to focus a target a marketing program

  • They have a need for financing within 90 days

Community and Regional Banks do not need to lend out of market to grow. They need better marketing tools to identify SBA Lending Prospects that will enable them to grow locally and lend sensibly.

Thoughts on Small Business Card Growth Projections and Discover’s Return to this Market

By David Schmidt

US credit card volumes went through some growing pains after the recession, but have rebounded nicely and are generally thought to be healthy according to a Mercator Advisory Group study[1].  Nevertheless, growth appears to have plateaued with Mercator reporting 63 million new accounts in 2017 with the same number forecast for 2019.

Small Business Cards, however, are expected to grow to about $700 billion by 2022 from the current level of $536 billion in transactions.  The biggest opportunity in the small business sector is with small businesses employing fewer than 20 people.  These businesses often rely on the owner’s consumer cards, but in doing so forego account controls, reporting, and rewards tailored to businesses.

Discover’s return to the small business market clearly looks to take advantage of this projected growth.  For the same reason, banks should be looking to grow their card portfolios as well as the profitability of their small business customers.

We have found that small business accounts can be a very profitable segment for banks when commercial account holders subscribe to more than two financial products.  Getting a commercial customer to add a credit card account can therefore be a good way to seal the relationship.

Here are several suggestions on how best to proceed:

  • The benefit of promoting cards to existing business customers is increased account longevity, thus multiplying profits over time.  However, you will want to focus on businesses that are either in a growth or mature lifecycle stage, and avoid businesses that are in the static/decline stage due to the associated higher risks and lower profit potential of these firms.

  • In addition, identifying business owners from a bank’s retail file, who are not commercial account holders, provides an opportunity to acquire new accounts at much lower costs than campaigns directed at external prospects.

  • When reaching out to external prospects, your targeting should include selectors that indicate proximity to your branches, less than 20 employees, a growth or mature lifecycle stage, acceptable credit risk and significant wallet potential.

OX2 Solutions Corporation can help optimize your small business outreach by providing insights on internal and external prospects that are proven to drive marketing efficiency.

[1]U.S. Small Business Credit Card Forecast, 2017-2022:  Healthy Market, Room for Improvement” – Mercator Advisory Group, March 2018.