Small business loans are the bread and butter of banking—especially for community banks. Loans to non-farm businesses and commercial real estate loans account for just under half of community bank loans, compared to 38 percent for the banking industry overall.

But as business lending remains a critically important part of the community bank portfolio, small businesses are increasingly in the hands of younger, less seasoned business owners and entrepreneurs—many of whom are looking outside of the banking sector for their growth capital.

Approximately a quarter of millennials—those aged roughly 18 to 36—earn income from a business in which they own a stake. This could be anything from a side hustle as a website developer to Mark Zuckerberg as CEO of Facebook. To clarify, numbers from a Wells Fargo survey indicate that about half of millennial small business owners have at least one employee besides themselves; 16 percent of them employ at least six people.

The vast majority of millennial business owners started their own businesses, and three quarters are in a startup phase or a growth phase. As they grow, though, few—less than one in five—are relying on commercial financing from banks. And in the future, more than half of these younger business owners say that new digital financial tools and nonbank offerings mean they will be less likely to use a bank.

A need for speed

Ryan Wilson is co-founder and CEO of the Gathering Spot, a private city club near downtown Atlanta that caters to younger professionals and entrepreneurs. With a restaurant, event rental space and co-working zone, the club—opened in 2015—is a modern rethink of the longstanding tradition of center city member clubs. And yet, when he was in startup mode, “we didn’t feel like banks had a good understanding of our business,” even though “what we were building would have been a good candidate for bank financing [with] tangible assets. But we didn’t get that far in the process.”


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