Chase’s Push Into SMB Lending

Banks, especially big ones, aren’t all that interested in lending money to SMBs.

That, since 2008 or so, has been the conventional wisdom. While access to all credit more or less was dramatically reduced in the wake of the Great Recession, the recovery has been rather uneven.

Enterprise lending came back. Banks gradually opened the tap — consumer lending came back — and then surged hard in 2016, particularly when it came to car loans and card spending. But small business lending has walked a longer road.

Over the years, competition has emerged in a variety of forms — online lenders like Kabbage, marketplace players like OnDeck and merchant services providers like PayPal and Square have all revved up their offerings to extend capital to these small businesses.

For the most part, big banks have remained on the sidelines, sticking their toes in the SMB lending waters through alliances with some of the very alt lenders that emerged to fill the void that they left.

But recent reports — particularly out of JP Morgan Chase — suggest that perhaps conditions are changing and that big banks could soon start rethinking smaller middle market businesses. And that could mean some long nights ahead for emerging players in the space.

JPMC’s Middle-Market Push

A company’s interest in an area can be measured in a variety of ways that usually break down into one of the three T’s: time, treasure or talent.

And by the talent metric (and to a lesser extent time and treasure) JP Morgan Chase is ready to level up its mid-sized business lending operation — particularly in the Southeastern United States.

Clarence Nunn was the head of GE Capital’s franchise business before General Electric decided new regulations gave it a good reason not to be in that business anymore. So now Nunn has a new mission — building out Chase’s U.S. expansion in mid-sized business lending in the southeastern U.S. Nunn will oversee a region including Florida, Georgia, Tennessee and the Carolinas, where the bank is expanding its middle-market lending into eight more cities this year.

Firms with $20 million to $500 million a year are becoming an increasingly important subset of Chase’s business — while other segments in smaller business lending have seen contractions, Chase has expanded lending in this segment into 30 new service regions. In the same period, lending in areas targeted for expansion increased nearly six-fold to $10.7 billion.

“Middle market growth has averaged 46 percent a year. As the economic recovery is continuing to really take hold, Chase is committed to keeping credit available for the businesses that are really pushing recovery,” Chase commercial banking chief Doug Petno told investors earlier this year.

All in all, revenue has grown to $351 million since 2008 — and executives have a long-term target of $1 billion.

“We’ve made a huge amount of progress in a very short amount of time in these new markets,” said Petno. “Building organically, banker-by-banker, client-by-client, loan-by-loan, we’ve essentially created a nice size bank from scratch.”

And that “nice-sized bank” should be making some of the upstarts a bit nervous.

Competitors Or Collaborators?

Obviously, at $20 million–$500 million a year in revenue, these are not typical small businesses. But from the smallest acorns, mighty oaks grow, and Chase, as well as others, seems at the ready to provide services to those who’ve made it past the acorn stage. It may not be the case that Chase is looking to compete with these alt lenders as much as they may wish to use them to scout out the talent that may need more capital to finance their growth. And that may inspire a whole new set of relationships and partnerships between them that help SMBs survive and thrive.