By Elisabeth Hughes MacDonald
As we begin 2022, we see signs that small businesses will remain cautious and constrained throughout much, if not all, of this year due to the unrelenting pressures that have carried over from 2021: local health restrictions, consumer uncertainty, ongoing supply chain issues, and significant challenges in filling open positions.
While small business failure rates during the seemingly never-ending pandemic are still being tallied, a drive through any retail or entertainment district is a tour of empty storefronts. “Closed” and “Hiring” signs reveal the damage.
While conditions are uncertain, lenders are readying themselves to make credit available as small businesses work to return to operating at full capacity. Unfortunately, there are several possible threats to a rebound for small businesses.
New COVID variants might continue to renew pressures on small business operations. On a more macroeconomic scale, in the United States the inflation rate has risen to levels not seen in nearly 40 years. While the impact might have been minimal thus far on small businesses, continued rising prices are likely to be a factor that business owners will need to adjust for in the coming years.
‘Critical Funding’
Credit unions specifically continue to play an important role in supporting the struggling small business ecosystem. So often, they provide critical funding for those local businesses that are at the heart of their communities, the ones that create a sense of neighborhood.
And for those entrepreneurial souls who’ve started their own companies during the pandemic, whether out of necessity or opportunity, credit unions will continue to be a lifeline of capital.
Yet, credit unions, too, face many of the same challenges as the small businesses they serve. The Wolters Kluwers 2021 Regulatory & Risk Management Indicator survey, which measures regulatory and risk trends in the lending industry, showed a 25-point increase in the anxiety levels of U.S. banks and credit unions in managing their risk and regulatory compliance obligations as compared to 2020 survey results.
In these uncertain times, when gathering data to make credit underwriting decisions, all lenders can struggle to obtain the information and insights required to make well-informed decisions.
Furthermore, managing a portfolio of clients – keeping track of deferrals, delinquencies, and credit utilization – can become even more challenging.
Knowing the True Picture
Of course, data is key to making informed decisions about small business lending. Knowing the true picture of a small business’s credit profile is a critical part of that data. Access to credit payment performance data on small businesses is available to members of the Small Business Financial Exchange (SBFE).
SBFE is a trade association whose members include banks, credit card issuers, leasing companies, alternative lenders and credit unions. Members share their small business lending data in a safe and anonymized way. SBFE has data on more than 89 million accounts and its members include nine of the top 10 commercial lenders, the top 10 U.S. business card issuers, and a growing number of credit unions.
Reasons for Joining
Access to that credit payment performance information allows credit unions to make more-informed lending decisions which, ultimately, lead to better results. There are many reasons why small business lenders join SBFE:
- It’s doing the right thing by their commercial customers. By reporting to SBFE, credit unions help build the credit history of their small business customers.
- SBFE membership provides access to highly predictive data.
- With local and national lenders as part of the SBFE give-to-get exchange, the association has wide geographic coverage of small business accounts. This translates into volumes of information.
- Lender anonymity and protection of the data from marketing uses is core to how SBFE operates. This provides lenders the comfort of knowing they are reporting in a protected manner that will further aid their commercial customers.
- Corrections and dispute management processes have been built with lender insight to ensure streamlined functionality for the lender’s operations team.
The Backbone
Scott Everett, VP of member business services and new ventures at Wright-Patt Credit Union in Ohio, said, “We believe the SBFE provides a more reliable, transparent methodology to assessing credit risk, and allows us to decision loans faster.”
As we all know, small businesses are the backbone of the economy of United States. Together, we hope that 2022 will prove to be a year in which small businesses thrive.
Elisabeth Hughes MacDonald is CEO of Small Business Financial Exchange. To learn more about SBFE and the data and services it provides to its members, please visit SBFE.org