Large National Banks Hold the Advantage When Main Street SMBs Shop for Credit

Access to business financing is crucial for Main Street small and medium-sized businesses (SMBs). But while a significant share of these small businesses across all revenue tiers have access to business funding sources, about 30% of those with less than $150,000 in annual revenue have that same access.

Those findings, captured in PYMNTS’ “Main Street Health Q2 2023” report, show that small businesses are looking to turn this around, however, and are planning to increase their reliance on credit in the coming year.

Most of that reliance will likely fall on large national banks, the study done jointly by PYMNTS and Enigma reveals, as one-third of Main Street SMBs favor them for their financial needs. This preference for large banks is higher than any other type of lender, per the report.

Drilling down into the data shows the familiarity and trust that SMBs place in these large financial institutions (FIs), regardless of their industry.

For example, large national banks like Bank of America, Wells Fargo and JPMorgan are particularly favored by construction firms, with 39% considering them for credit lines. Similarly, about 34% of small businesses in the professional services sector look to large lenders for their credit needs, as do nearly 32% of those in the retail trade and hospitality space.

Alternative Lenders

Despite large national banks dominating the lending landscape, there are opportunities for other lenders to improve their standing. The study found that 26% of Main Street SMBs are planning to use online lenders, indicating a growing interest in alternative financing options.

Credit unions and small regional banks also hold appeal, with 14% and 13% of SMBs considering them, respectively. Retail trades in particular show a preference for online lenders and credit unions when seeking credit.

But to effectively compete with large national banks, online lenders and other alternative financing providers must position their products and services to specific subsets of SMBs. Understanding the preferences of SMBs based on their size and industry will be crucial for lenders to capture the trust and confidence of small business owners, and ultimately gain a larger share of the SMB lending market.

As the study noted, “with nearly half of all Main Street SMBs in our sample planning to utilize more credit than before, the time may be right for lenders to focus on wooing these small but vital contributors to the American economy.”