SMEs Severely Dissatisfied With eLending Experience — Fed

The Federal Reserve published the findings of its research on small business lending habits in the U.S. on Friday (March 4), and the conclusions may prove disheartening amid recent, separate research that found small businesses feeling the effects of an improving economy.

SMEs are still struggling to find financing, the Fed said in its report, and while loan approval rates were significantly higher in 2015 than they were a year before, they still leave a large portion of small business borrowers without funding.

According to the Fed, 80 percent of SMEs that sought funding in 2015 received it, a 15 percent increase from 2014 levels. Further, 45 percent of those that requested funding received the amount they asked for, compared with 38 percent in 2014.

But Federal Reserve Bank of Cleveland Senior Policy Analyst Ann Marie Wiersch told Forbes in an interview that bank lending to small businesses is still struggling.

“Bank lending did decline sharply, and it has been steadily climbing back, but we’re not back to pre-recession levels,” she said.

The Fed’s analysis found that microbusinesses had the most difficult time accessing finances. Reports noted that half of the companies that sought funding received less than half of the amount of capital they requested, “leaving them with substantial shortfalls to cover operating expenses or fund expansion plans,” the publication wrote.

For companies with revenue of less than $100,000, 63 percent said they fell short of their funding goals; 58 percent of startups said the same.

But these struggles cannot discount the overall trend of improving conditions for SMEs in the country, reports said. In addition to increased bank lending, revenue was up for the businesses surveyed.

“Our respondents did seem to have much more positive outcomes, and I think some of it may stem from applicant quality,” Wiersch added. “This is not a random sample survey, but it does suggest that conditions have improved for small businesses.”

Interestingly, traditional banks still hold the vast majority of the SME borrower customer base, with 90 percent of small business loan applications landing at a bank, compared to just 20 percent landing with an online lender.

Further, SMEs that secured financing from a bank were more satisfied than those that sought financing from an online lender; according to the Fed, 75 percent of businesses approved for a bank loan said they were satisfied, compared to just 15 percent for small businesses going to an online lending platform.

Among the most common complaints for online lenders included high interest rates, unfavorable repayment terms and lack of transparency, according to the report.