SMB Lending in a Down Market

Webinar: SMB lending in a down market

At the end of September, Fintech Nexus’ Chief Product Officer Todd Anderson sat down with leaders across the financial services ecosystem to discuss how they’re thinking about a possible recession and what it could mean for SMB lending.

Scott Steinberg, Chief product officer Enigma; Lakshmi Narain, Managing VP of merchant data decisions at Capital One; Jane Prokop, EVP of product for SME business at Mastercard; Chris Scislowicz, MD and Global head of disbursements at Accenture, sat down to talk shop.

They hoped to enlighten the audience with their viewpoint on the lending industry, what they learned from prior recessions,s and what decisions are most important if one is on the way.

Poster for webinar

The talk is On-demand here.

The SMB owner is all of America

As Scislowics began, he described the target customer for these firms: the SMB owner that makes up 85-90% of business in America. He said that depending on statistics, 85-90% of these firms have less than 20 employees, 55% are sole props, and two-thirds are working out of their homes with an income of less than $60 K.

The most important thing to remember about these customers is that they need fast, convenient, cheap products like a revolving line of credit, he said, possibly term loans, but overall understanding products to their needs.

“These small business owners are spending their time running their business and don’t have time for banking products,” Scislowicz said. “So it’s important we meet them where they are with something as fast as can be.”

Spending is up

Prokop filled in the low down on the down-low market with some SME stats from Mastercard. She said while inflation and recession are weighing heavily on everyone’s mind these days, and a choppy economy forces everyone to expect more volatility, consumers are still spending.

“Trends that we are seeing for Mastercard is that consumers are continuing to spend,” she said. “Our monthly report says U.S. retail sales excluding auto were up year-over-year at 12%, up 20% compared to 2019. Sectors focusing more on consumer experience, like restaurants, airlines, and lodging, saw the most growth, growing double digits each.”

She said that consumers are still expected to spend more come the holiday season, with an overall positive retail growth up 7% year-over-year, with a bias toward in-person shopping up 8% in-store vs. 4% eCommerce.

What does that mean for lenders?

Lakshmi said he would fill those quantitative details with qualitative data from his data science preview at SMB ML at Capital One. What Prokop said matches up, but lenders are keeping a close eye on the situation nonetheless, he said.

“That aligns with what we have seen so far; we see credit risk is normalizing but still below ore pandemic levels, SMBs are still spending, but there is defiantly still some caution around inflation,” he said. “We see new businesses are still forming like crazy; we saw that at the start of the pandemic and know the SMB owner is a resistant and opportunistic group.”

He said if you see chaos in the marketplace, you’ll see new business form, and brand new ventures pop up to fill niches, just like the country witnessed at the opening of the pandemic.

“If you are a typical lender, you have one foot on the accelerator,” Lakshmi said, “the other foot on the brake, and a careful hand on the starting wheel, looking at who you are giving a ride to carefully because it is starting to get bumpy on the way.”

At an individual level, there is a slowdown

Steinberg, armed with data collected by Enigma at what he called an individual business-to-business level, said that the macro trend was not holding up case-by-case.

“We at enigma see the same macro trend that Jane started to talk bout, but we look at how each individual small business is doing,” Steinberg said. “At a micro, between the beginning of the year and now, we have seen a 10% drop in SMBs whose revenues are growing. Macro is strong, but it doesn’t seem constant across SMBs at an individual level.”

Hear where the conversation went by watching the webinar On Demand here.

  • Kevin Travers

    Intensely energetic news reporter asking questions covering the collision between Silicon Valley, Wall Street, and everywhere in-between. Studied history at the University of Delaware, learned to write at the Review, and debanked.