Our recent focus has centered on microbusinesses, the smallest of companies that include more than 90 percent of all businesses. As noted in our prior comments, microbusinesses make difficult borrowers for most banks. Lending to them can result in losses resulting from the costs of origination, underwriting, compliance, and related areas. Profits from this group largely depend upon a bank’s ability to deliver on cross-sale opportunities, an elusive goal for most banks.

The result of these challenges is that many banks, while proclaiming their interest in business lending, have in effect shut off these small borrowers. Banks still proclaim how competitive the small business lending space is with margins being squeezed by tough competitors. However, many fail to highlight the fact that they have narrowed the type of borrowers they will lend to, concentrating their focus on fewer targets and, thereby, increasing the competitive pressure as more banks focus on a limited target set.