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UK bank Barclays has rolled out a new service through its mobile app to allow its existing small and medium-sized enterprise (SME) customers to apply for and potentially be approved for a loan or overdraft in less than an hour.
Barclays has pre-assessed a group of 260,000 of its SME customers and alerted them via the app of how much they could theoretically borrow, up to £25,000 ($31,000). If customers decide they want a loan, they have to fill out a quick online questionnaire. Applicants will be notified within the hour if they have been approved and in some cases will receive the money within the hour.
This service will benefit Barclays in several ways:
- This will help build customer loyalty. Small businesses remain an underserved market, as they are generally too small to be profitable customers for large retail banks. The UK has even made it mandatory for banks to refer small businesses they reject for loans to alternative lenders to combat this problem. By tailoring its services specifically to small businesses, Barclays can reassure these customers that their needs are a priority for the bank.
- This will help the bank stay competitive. Marketplace lenders such as Funding Circle do well with small businesses because, unlike their incumbent competitors, they specialize in providing loans quickly. By performing pre-assessments with existing data to shorten its own approval process, Barclays can increase its competitiveness.
The data suggests that banks should focus more of their efforts on restoring small businesses. According to Barclays research, 30% of small businesses do not consider applying for a loan, despite claiming it would boost their business, with this figure rising to 39% for the smallest SMEs.
Barclays says that’s largely because small businesses can’t spare the time it takes to go through the application and approval process, which currently takes up to five weeks. If Barclays’ new service manages to eliminate this problem, it could enable the bank to win more business from this clientele. Considering that the bank currently has around 1 million SME customers, this would give it a significant boost.
Small businesses account for 99% of American businesses, 54% of total sales and 55% of all jobs, according to the US Small Business Administration.
These businesses need capital to grow, but small businesses are underfunded – only half of small businesses with annual revenues of $100,000 to $1 million received at least some of the funding they applied for to the big banks at the end of 2015. This is partly because banks have pulled out of this segment because lending to small businesses using the traditional underwriting model is expensive. This leaves a massive amount of unexecuted loans which we estimate reached $96.5 billion in Q4 2015.
Alternative lending companies have stepped in to capitalize on the opportunity to help meet the lending needs of more small businesses. which were rejected by the banks. Alternative small business lending companies provide digital platforms that connect small business borrowers to capital using non-traditional means.
We estimate that alternative small business lenders generated $5 billion and held a 4.3% share of the U.S. small business lending market in 2015. But alternative small business lending platforms will generate $52 billion. and will earn 20.7% of the total market by 2020. , driven by the continued growth of new players, increased borrower awareness and interest, and most importantly, major partnerships with major banks.
BI Intelligence, Business Insider’s premium research service, has compiled an in-depth Alternative Small Business Lending report that analyzes market opportunities for alternative lenders, forecasts market share and volume growth of
platforms, profiles key players and discusses major industry risks.
Here are some key takeaways from the report:
- Alternative lending platforms are able to capitalize on this underfunding and also take shares from banks. These companies are using machine learning and digital tools to quickly and efficiently extend credit to a wide range of small businesses. We estimate that the share of alternative lending companies in the U.S. small business loan market will reach 20.7% by 2020.
- Alternative lenders are now partnering with banks, which will propel growth in the future. New lenders are finding opportunities to offer white label services to big banks. We expect banking partnerships, like the one between JPMorgan and OnDeck, to add 7.7 percentage points to the alternative lending industry’s market share by 2020.
- A flurry of new lenders have entered the market, but this is still just the beginning. A handful of small business lenders, from Funding Circle to Credibly, have entered the market, creating challenges as customer acquisition costs rise and alternative lenders struggle to differentiate themselves.
In full, the report:
- Forecasts market share and volume growth of Alternative Small Business Lending industry and breaks down key growth drivers.
- Explains why small businesses are underfunded and quantifies market opportunities for alternative lenders.
- Defines the different types of platforms used by alternative lenders, including their revenue models.
- Lists the advantages and disadvantages of alternative lenders compared to traditional players.
- Reviews the major players in the industry and identifies their growth factors as well as weak points limiting their growth.
- Identifies the main risks that could jeopardize the success of alternative platforms
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The choice is yours. But whichever way you decide to acquire this report, you have given yourself a powerful advantage in your understanding of alternative small business loans.