These are challenging times for lenders and borrowers alike. We’re beginning to see the light at the end of the pandemic tunnel. Now we have to deal with the economic implications and trends the pandemic drove. Case in point: the Federal Reserve Bank’s serial decisions to increase the prime rate have pushed small business loan interest rates up above 10% for the first time since 2007. Small business owners are more cautious about borrowing now and, more than ever, they’re seeking the lowest cost lending solutions they can secure.

That’s where Small Business Administration loans come in. SBA loans typically offer lower interest rates than private loans. In the case of SBA(7A) loans, depending on the amount borrowed and the type of loan a borrower selects, rates under 6.0% are still available. And SBA loans are, by definition, less risky for banks, credit unions, and fintech companies than conventional small business loans, because they are largely government-backed.

Today, providers of SME business loans are facing a double whammy: a competitive landscape and a tough economic climate. Depending on who you talk to, the next forecast period spells doom or gives us hope. But financial services providers can use SBA loans as a stabilizing strategy to shore up their businesses even in hard times. These loans are powerful fuel for growth in the lending category. Today we’ll take a look at how digital lending solutions give lenders even greater access to this power boost.

The Pandemic was good for the lending business

Small businesses were hardest hit during the COVID-19 pandemic. Securing a loan, in many cases, was life-saving for them. So the federal government made it easier for borrowers to get the cash they needed through various means, including the Paycheck Protection Program (PPP) and the lowest Federal Reserve interest rate since the Great Recession. Financial institutions of all sizes benefitted from this favorable lending climate. On average, small banks reported a growth rate 23.2% higher than market predictions. Medium and large banks outpaced predictions for the forecast period even more—in each case by over 35%.  

Who were the biggest winners, though? In short, lenders who adopted advanced technologies. The fintech industry, which enthusiastically embraced digital lending platforms that brought greater efficiency to loan origination, loan applications, and loan processing were dubbed heroes for the rapid service they provided. And they were rewarded for these initiatives. While saving the day for many small business owners, they also increased their small business lending market share, earning more than 27% of all small lending business in the US. Digital lending solutions proliferated, with key players Finastra, FIS, and Nucleus Software, and Biz2X emerging as leaders in the category.

How digitalization is affecting market growth

The global digital lending platform market is growing larger every day. In 2021, it was worth $5.84 billion. Analysts predict a 25.9%  compound annual growth rate (CAGR) for the industry over the next eight years. Fintech start-ups are entering the field regularly, increasing market size.

But not all digital lending platforms are alike. End-to-end solutions, which take into account each step along the way from loan application to loan servicing, return the greatest value. Those that rely on both artificial intelligence and machine learning are the most effective at delivering a top-notch experience for bankers and borrowers alike. But taking into account lending market dynamics, digital solutions that encompass a specifically-tailored platform for SBA loans are a banker’s best bet.

How common are SBA loans?

In a word, very. In 2022, the SBA funded over $43 billion in loans under its multiple programs, including over $25 billion in SBA 7(A) loans. SBA 504 loans, which are primarily used for purchasing equipment and commercial real estate, also made up a large portion of the volume. Needless to say, lending institutions aiming for growth should set their sights squarely on this large, lucrative, and relatively risk-free product category. But there’s a difference between growth and profitable growth. Automation at every stage of the SBA lending process—from intake to risk analysis to underwriting to funding—is the way to achieve the latter. Ambitious lenders don’t have time to spin their wheels.

The benefits of digitalization in the lending life cycle

Speed, accuracy, and more robust risk analysis are hallmarks of digital lending solutions. The best platforms feature mobile apps, which expand user access beyond on-premises technology and allow loan officers and borrowers to conduct business with their smartphones. They also allow financial institutions to manage their entire lending portfolios, including SBA loans.

Biz2X digital loan origination software facilitates the processing of the most popular SBA loans, as well as SBA Express and special program loans through a single customizable platform. Biz2X Accelerate is an all-in-one portal for SBA loan underwriting, risk management, client communication, and financial reporting. Through an intuitive, easy-to-use banker dashboard, it serves as a hub for all SBA lending workflows.

Due to its flexible nature, Biz2X allows lenders to pursue their current market segmentation strategies and easily open new channels of business. Our software maximizes the value of partnerships, with built-in integrations to SBA systems like E-Tran and Colson. Other collaborations include trusted third-party data services  like Experian, Equifax, and Dun & Bradstreet. Keeping current with payment service trends, the platform incorporates blockchain technology to facilitate cryptocurrency payments to lenders.

One lender’s experience

Popular, Inc. is one of the top 50 U.S. banks in terms of total assets. It’s also the leading financial institution in Puerto Rico, based on both assets and deposits. It offers equipment financing, commercial real estate, small business and debt consolidation loans, as well as basic banking services for consumers and businesses. The company is an SBA-accredited lender and certified in the SBA’s Preferred Lender Program. In the mainland United States, Popular provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank.

In 2019, Popular set a goal of expanding its digital banking services and increasing its small business lending operations by 50%. The company was cautious: it was important that it not move too fast. Popular, Inc. aimed to grow organically without overstepping its credit/risk management requirements.

The company’s decision to adopt the Biz2X platform led to exceptional outcomes. Popular, Inc. took advantage of several customization opportunities offered by the Biz2X platform. For example, the financial institution chose to automate lending decisions for smaller loans between $5,000 and $100,00. It streamlined the loan application process, whittling it down to 5 minutes through its online portal and mobile app, all the while using tailored management reports and risk analysis tools tailored to its business.

In terms of SBA lending,  the Biz2X platform gave the bank the ability to submit the loan applications to the SBA and receive approval and then send them to bank's core system for booking and onboarding. Popular was able to increase its underwriting speed by 2.5 times and process more loans. During the pandemic, Popular extended PPP loans to nearly 50,000 small businesses. Since then SBA lending has contributed heavily to the institution’s bottom line.

The numbers tell the story best. The company registered:

  • 170% increase in application volume
  • 32% increase in loan closures
  • 28% increase in lending upsell

Learn more about Biz2X

Biz2X was created by Biz2Credit, a premier online lender established in 2007. Our platform is backed by years of Biz2Credit’s direct lending experience. We know firsthand what bankers and small businesses need. As a direct lender, we’ve helped businesses navigate complex mergers and acquisitions. We’re a turnkey solution for banks trying to scale up their lending business while keeping up with changing compliance requirements. We’re completely dialed into SBA loans of all kinds and can help your business grab a bigger piece of the profitable SBA lending pie. In just 18 months, our business has grown by more than 700% as we thoughtfully serve lenders of every dimension and configuration.

What’s more, the Biz2X platform is a global solution. So if you’re looking for growth outside North America and to expand your customer base into Canada, China, the Middle East, Germany, India, Latin America, Japan, or the rest of Asia Pacific, Biz2X can put you on the path. If you’re already active in any of these markets, Biz2X can help you serve customers more efficiently, processing a greater number of loans while successfully managing risk and providing the friction-free customer experience small businesses seek. Biz2X is an omni-channel small business lending solution—a great fit whether you operate 10 branches, 100 branches, or no branches at all. We’d love to give you a free sample of what it’s like to use our platform. Schedule a demo today and find out how it can be tailored to your unique needs and growth strategy.