Are alt-lenders catching up to banks on borrower experience?

In a recent Sageworks webinar with David O’Connell from Aite Group on the small business borrower experience, David presented data from an Aite survey of small business borrowers. One of the most fascinating insights from the data was how closely alternative lenders are nipping at the heels of banks when it comes to borrower satisfaction.

Several questions from the survey analyzed the timing of the application process for SMB borrowers, their satisfaction with the process, and their biggest pain points. When it comes to response times, banks are beating out alt lenders when their SMB customers apply for loans. 48 percent of borrowers got an initial response from their primary deposit bank within 1 day. Only 39 percent of borrowers got the same response time with alt-lenders. Similarly, 42 percent of borrowers had their loan documentation created within one day at their primary deposit bank, while only 37 percent of borrowers with alt-lenders had completed documentation within one day.

However, even as banks are winning on response times, it should be pointed out that the margin is slim; alt-lenders are not far behind on response times. This was reflected in a question on borrower satisfaction. 49 percent of borrowers at their primary deposit bank were “very satisfied”, while 54 percent of borrowers at alt-lenders were “very satisfied”. The gap between response times and overall satisfaction can be explained by looking at the biggest pain points borrowers have with banks. The two biggest pain points for borrowers at banks are the number of documents required and the repetitive tasks within the application process. These are cited as “extremely difficult” by 8 percent and 6 percent of borrowers, respectively. By contrast, these are the lowest ranked pain points for alt-lenders, with only 5 percent and 1 percent of borrowers at alt-lenders citing these as “extremely difficult”.

The takeaway here is that banks are currently competitive with alt-lenders when it comes to turn-around times, but only just. As alt-lenders continue to mature and improve their processes, they will certainly overtake banks on turnaround times. Alt-lenders are already streamlining the loan application process and addressing the key pain points for borrowers at banks. Perhaps the most forward-looking statistic in the Aite survey was that 47 percent of SMB borrowers have already applied for credit with an alt-lender, and another 36 percent report that they might, probably or definitely will apply to an alt-lender for credit in the future.

While banks are by no means losing, they need to begin focusing on the competition presented by alternative lenders. By eliminating manual data entry and streamlining loan decisioning, banks can continue to win against alternative lenders.

To see more data from Aite Group’s survey, watch the full webinar.