Part I – New Application Volume:
Generating small business or business banking applications may be one of the hottest topics in this segment at this time. Loan demand is down and the pool of qualified candidates seems to be down as well. Trust me, I am not going to jump on the easy bandwagon and state that the financial institutions have stopped pursuing small business loan applications. As I work across the country, I have yet to see a financial institution that is not actively pursuing small business loan applications. Loan growth is high on everyone’s priority and it will be for some time.
But where have all the applicants gone? Based upon our data, the trend in application volume from 2006 to 2010 is as follows:
Chart displays 2010 values:
So at face value, we see that actually, overall applications are down (1,032 in 2006 to 982 in 2010) while the largest financial institutions in the study were actually up from 18,616 to 25,427. Furthermore the smallest financial institutions with assets less than $500 million showed a significant increase from 167 to 276. An increase of 65% from the 2006 levels!
But before we get too excited, we need to look a little further. When we are talking about increasing application volume we are focusing on applications for new exposure or a new extension of credit and not renewals. The application count in the above chart includes renewals. So let’s take a look at the comparison of New Request Ratio between 2006 and 2010.
Chart displays 2010 values:
So using this data in combination with the total application count we get the following measurements of new application volume in actual numbers.
So once we get under the numbers, we see that the gross application numbers truly don’t tell the whole story. In fact we could classify the change in new application volume as follows:
So why did the credit unions and community banks do so well while the rest held steady or dropped significantly? The answer is based upon a few factors:
- Field resources purusing small business applications
- Application requirements
- Underwriting criteria
In part II of this blog we are going to focus on the first – Field Resources. The last two factors – application requirements and underwriting criteria – will be covered in subsequent posts posts. While they have a significant impact on the application volume and likely are the cause of the application volume shift from 2006 to 2010, each represents a significant discussion that cannot be covered as a mere sub topic.
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