In 1954, McDonald’s was just a single hamburger stand in San Bernardino, California, owned by Richard and Maurice McDonald. When 52-year-old paper cup salesman Ray Kroc visited to pitch his multimixer milkshake machines, he immediately saw the potential of their innovative Speedee Service System — a high-volume kitchen serving 15-cent hamburgers with unprecedented efficiency. Kroc joined the business as a franchise agent. With the help of a former Tastee Freeze exec, he positioned the new restaurant chain as being a real estate investment, which convinced local banks to lend where larger ones wouldn’t. The rest is history. Kroc turned McDonald’s into the global fast-food empire we know today, demonstrating the transformative power of early access to capital and strong partnerships with community lenders for small business growth.Today, small businesses still rely on financial institutions to thrive. Community financial institutions (CFIs), in particular, have long championed small business lending by leveraging deep community ties and personalized services to meet the unique needs of their clients.As competition for small business relationships heats up, the FDIC’s 2024 Small Business Lending Survey underscores the importance of balancing relationship-driven lending with emerging technology. By combining high-tech tools with high-touch service, CFIs can adapt to evolving customer expectations while maintaining their edge in small business lending.Insights from the SurveyThe FDIC’s 2024 Small Business Lending Survey highlights several key trends and metrics that emphasize the ongoing importance of relationship-driven lending for CFIs:
- Around 3 in 10 banks, including over 50% of large banks, can approve small loans within 1 business day, and 75% of banks can approve such loans within 5 business days.
- CFIs rely more on “soft” info from personal relationships for underwriting, while large banks focus on “hard” data like credit scores, particularly for smaller loans.
- Most small business borrowers are located near bank branches, revealing the critical role of physical networks in building and maintaining small business lending relationships.
- Around 50% of banks use or are considering fintech solutions in their small business lending, but very few allow borrowers to complete loan applications entirely online.
- CFIs rely on personalized meetings to manage startup loan-related risks, while large banks are more likely to use government guarantees, like SBA loans.
Five Actionable Strategies for CFIsWhile CFIs excel at offering personalized service, they face increasing competition from fintech companies that promise faster processes and broader digital reach. To remain competitive, CFIs must strike a delicate balance between retaining their relationship-driven service and selectively adopting innovative technologies. Here are five strategies that could prove beneficial for CFIs lending to small and medium-sized businesses:
- Investing in Digital Platforms with a Human Element. Modernizing application and loan servicing systems with user-friendly tech can simplify the lending process while preserving essential human connections. Although fintech adoption is increasing, most CFIs still require business borrowers to visit a branch during the loan application process. This indicates an opportunity for CFIs to blend smart tech with personalized customer support, ensuring borrowers who prefer in-person guidance are not left behind.
- Utilizing Data Analytics for Tailored Solutions. Data analytics can provide deeper insights into borrower behavior and financial health, allowing CFIs to offer more customized loan products. Currently, CFIs rely more on “soft” information for underwriting. However, by integrating analytics, they can complement relationship-based insights with more predictive, data-driven tools, enhancing loan performance and customer satisfaction.
- Enhancing Relationship Management Skills. Training frontline staff to act as trusted advisors can improve creditworthiness discussions and deepen borrower trust. CFIs excel at using personal interactions to gather qualitative insights. Strengthening these capabilities ensures CFIs continue to stand out in a competitive market where larger institutions often prioritize speed over personalization.
- Collaborating Strategically with Fintechs. Partnerships with fintech can help CFIs streamline processes like underwriting and loan servicing while preserving the trust-building, high-touch service that small business borrowers value. Targeted tech investments that align with CFIs' community-focused mission, rather than replacing it, could be considered.
- Deepening Community Engagement. Leveraging physical branch networks for outreach and engagement remains critical, as most small business borrowers are located near branches. Hosting financial literacy workshops or participating in local business forums can further solidify CFIs as trusted partners, fostering loyalty and strengthening borrower relationships.
Why This Matters to CFIsIn the post-pandemic era, CFIs are uniquely positioned to provide the flexible, relationship-driven solutions that small businesses will always need to thrive, particularly during periods of volatility. By leaning into their strengths — personalized service, community knowledge, and adaptability — CFIs can continue to serve as invaluable partners.To maintain this advantage, CFIs could actively invest in tools and strategies that amplify their impact. Personal relationships remain central to loan underwriting, with digital enhancements complementing rather than replacing human connections. Staff training, strategic fintech partnerships, and active community involvement ensure CFIs retain their edge in a crowded and evolving market.
By prioritizing innovation and relationships in equal measure, CFIs can strengthen their standing as trusted financial partners and ensure their resilience and relevance for years to come.
By prioritizing innovation and relationships in equal measure, CFIs can strengthen their standing as trusted financial partners and ensure their resilience and relevance for years to come.
