Read time: 10 minutes
Executive Insights
- Most financial institutions believe their small business lending experience is competitive because internal metrics, cycle times, and satisfaction scores look reasonable. Borrowers are measuring something different: how hard the process feels, whether they can see what happens next, and whether their time is respected.
- Digital convenience is no longer a feature. It is now part of how small business owners experience trust. According to the J.D. Power 2025 U.rS. Small Business Banking Satisfaction Study, “allowing me to bank how and when I want” ranks among the explicit drivers of overall satisfaction, alongside trust and people. [1]
- The FDIC’s 2024 Small Business Lending Survey reveals a structural gap: about three in four financial institutions can approve a simple loan within five business days internally, yet only 6% offer a fully online application. Sixty percent allow zero online steps in the process. [2]
- Switching risk is real and accelerating. McKinsey found that 41% of small businesses are likely to switch their primary financial institution within 12 months, with digital experience, client support, and easier credit access leading the reasons. [3]
- Communication failures are a larger loyalty problem than most leaders recognize. J.D. Power found a +16 point satisfaction gain from improved communications alone, confirming that borrowers reward transparency about what is happening, not just a favorable credit decision. [1]
- Financial institutions that close the expectation gap are not choosing digital over relationship. They are using digital process design to make their relationship model credible at scale.
If your institution relies on relationship strength to retain small business borrowers without matching it with digital execution, the data in this article will challenge that assumption.
The instinct to lead with relationship is correct. Federal Reserve Small Business Credit Survey data confirm that firms applying to financial institutions most often cite an existing relationship as their primary reason, and satisfaction outcomes still favor smaller institutions by a significant margin. In 2024, net satisfaction among approved applicants was 70% for small financial institutions, compared to 59% for large ones and just 28% for online lenders. [4]
The mistake is treating relationship depth as a sufficient buffer against competitive pressure. It is not.
J.D. Power’s 2025 U.S. Small Business Banking Satisfaction Study ranks the primary satisfaction dimensions in this order: trust, people, allowing me to bank how and when I want, account offerings, helping me save time or money, digital channels, and resolving problems or complaints. [1] Read that list carefully. Four of the seven factors are directly shaped by how convenient, transparent, and low-friction the experience feels, not by the quality of the credit decision or the loan officer’s expertise.
In Numbers: 52% of small business owners expect to use more digital and self-service channels by 2027, and McKinsey’s 2024 MSME survey found that the quality of online and mobile banking has become the top reason owners choose a primary financial institution. [5, 6] Sources: BAI; McKinsey 2024 MSME Survey
BAI found that 52% of small business owners expect to use more digital and self-service channels by 2027. [5] McKinsey’s 2024 survey across seven countries found that the quality of online and mobile banking had become the top reason owners choose a primary financial institution. [6] The competitive benchmark is no longer set by the community lender across town. It is set by every digital experience a business owner encounters in their daily life.
What borrowers want, in plain terms, is both. They want the relationship manager who knows their business and the ability to upload documents at 10 p.m. without calling anyone. Many lenders still deliver one or the other. Few deliver both consistently.
The Data Gap: Why Internal Metrics Miss Borrower Frustration
Here is the tension that should concern every Head of Business Banking: the FDIC’s 2024 Small Business Lending Survey shows that roughly three in four financial institutions can approve a small or simple loan within five business days, and the same share can approve a typical small business loan within ten business days. [2] Those are not embarrassing numbers. Most lending leaders see them and feel reasonably confident about their operational posture.
But the same survey reveals that only 6% of financial institutions offer a fully online application. Thirty-four percent allow some steps online. Sixty percent allow no steps online at all. Only 25% accept a formal application online, 23% accept supporting documents digitally, and 13% allow online signing. [2]
The process may move quickly inside the institution. From the borrower’s perspective, the experience still involves paper, phone calls, branch visits, and unclear handoffs. Internal cycle time and external effort are two different measurements, and most institutions only track one of them.
The borrower friction evidence aligns with this gap. BAI found that 54% of business customers seeking loans would prefer an online process if one were available. [5] Aite-Novarica found that 71% were already using or interested in obtaining lending through online channels. [7] The same research found that more than half of small businesses viewed nonbank providers as superior on speed of decisioning and funding. [7]
The critical blind spot sits in the FDIC data on technology prioritization. Financial institutions broadly acknowledge that customer service (97%), speed of service (93%), and convenience (79%) are the primary factors shaping borrower choice. Yet only 49% of those same institutions rate customer-facing technology as highly important, even though 56% acknowledge that fintechs have the advantage in that specific area, and 40% say competitors do. [2] The gap between what leaders say drives borrower decisions and what they actually invest in is where demand leakage starts.
Aite-Novarica found that 60% of small businesses agreed or strongly agreed that it is frustrating when their financial institution asks for information they have already provided. [7] That frustration does not usually generate a complaint. It generates an application somewhere else, six months later.
Digital Friction Is a Loyalty Problem, Not a Technology Problem
Reframing digital investment as a loyalty issue, not a technology upgrade, changes the conversation at the executive level.
When a borrower abandons an application because it requires a branch visit to submit documents, that is not a systems problem. It is a borrower retention event. When a small business owner has no visibility into where their loan stands after submission, the silence is not a process gap. It is a communication failure that erodes trust. When the same supporting documents get requested twice because two parts of the process do not share information, that friction is not invisible to the borrower. It signals organizational disarray.
J.D. Power’s 2025 results make this concrete. Overall satisfaction rose 11 points year over year. The biggest gains came from support of financial health (+17 points) and communications (+16 points). Not from faster approval times. Not from better rates. From clearer explanations of what is happening. [1]
McKinsey found that 41% of small businesses were likely to switch their primary financial institution within 12 months, with digital experience and ease of credit access as leading triggers. [3] Fed Communities reported that 36% of employer firms already use more than one financial services provider, with smaller firms more likely to include nonbanks. [8] The switching behavior is already in motion. Most institutions do not see it in retention data until well after the relationship has weakened.
When Relationship Banking Isn’t Enough
The revenue stakes are larger than a single loan.
In Numbers: 84% of small business owners hold a personal account at the same institution where they bank for business, and satisfaction is 64 points higher among those who do. A failed lending experience rarely costs just one loan. [1] Source: J.D. Power 2025 U.S. Small Business Banking Satisfaction Study
J.D. Power found that 84% of small business owners also hold a personal account at the same institution, and satisfaction is 64 points higher among those who do. [1] BAI similarly found that 86% use the same institution for personal and business needs. [5] Fed Communities reported that 94% of firms using a financial institution or credit union as their primary provider have a deposit account there, and close to half also use that provider for financing. [8]
In Numbers: U.S. small business banking represents an estimated $150 billion annual revenue pool across deposits, loans, cards, cash management, and merchant services. Borrower experience investment is a franchise-retention initiative, not just a lending initiative. [3] Source: McKinsey
A difficult lending experience does not just lose a credit opportunity. It can weaken a deposit, payments, treasury, and even personal-banking relationship. For a financial institution president, that reframes the investment case entirely. Borrower-experience improvement is not only a loan-origination initiative. It is a franchise-retention initiative tied to the full economics of the small business relationship.
The case studies that follow are instructive not just as success examples, but as a frame for what the expectation gap actually costs when it goes unaddressed.
Huntington Bank’s Lift Local Business program redesigned small business access, pairing simplified credit with financial education and support. By September 2025, Huntington had reported $246 million in booked loans serving 3,186 small businesses. [9] The program did not abandon relationship banking. It used access redesign to make the relationship model work at larger scale.
Stearns Bank built process transparency directly into its lending experience. The institution publicly markets SBA Express approvals often within hours, with approvals above $350,000 in a matter of days. Its customer portal gives borrowers document upload capability, chat access, checklist visibility, and loan status transparency throughout the process. Stearns reported $1 billion in financing provided to small businesses in its 2024 annual report. [10] The differentiator is not just speed. It is visibility. Borrowers know what is happening and what comes next.
The BayFirst BOLT program is the most instructive case because it captures both sides of the equation. By Q2 2025, BOLT had produced 6,745 loans totaling $869.9 million since launch, proving that small businesses respond powerfully to faster, simpler small-dollar credit. In August 2025, BayFirst discontinued the program to reduce risk, estimating annual savings of approximately $6 million. [11] BOLT unlocked genuine demand. But speed without sustainable risk design is not a durable model. The lesson for executives is not that fast lending is dangerous. It is that speed, credit discipline, and economics have to be engineered together from the start.
What Lenders Who Get It Right Are Doing Differently
The institutions closing the expectation gap share a common operating logic. They do not treat digital experience as a separate workstream from relationship management. They treat digital process design as the infrastructure that makes the relationship credible and scalable.
Specifically, they focus on four operational levers:
Application accessibility. Borrowers can initiate, complete, and submit applications through digital channels without requiring a branch interaction for routine document submission or identity verification. This is not about eliminating human touchpoints. It is about making those touchpoints optional rather than mandatory for straightforward transactions.
Communication cadence. Status updates are proactive, not reactive. Borrowers are informed when applications move stages, when documents are received, and when decisions are pending, without having to call to find out. J.D. Power’s +16 point satisfaction gain from improved communications is not a soft outcome. It is a measurable loyalty return on a relatively low-cost operational change. [1]
Process transparency. Borrowers can see where they are in the process at any point. Checklists, portals, and document-status visibility reduce the perceived effort of borrowing even when the underlying timeline has not changed.
Repeated-information elimination. When the same document or data point is requested twice, it signals that internal systems are not integrated. Fixing this requires workflow redesign, not just better customer service. But the satisfaction return is disproportionate to the cost of the fix. Aite-Novarica found that 60% of small businesses find repeated information requests frustrating, making this one of the highest-impact, lowest-visibility problems in the borrower journey. [7]
Action Framework: Closing the Expectation Gap
Before investing in any specific technology or process redesign, leaders should honestly assess where their institution’s borrower experience actually falls relative to what borrowers now expect. Internal metrics are not sufficient for this assessment.
Diagnostic questions worth asking:
- What percentage of your small business loan applications can be completed entirely online, including document submission and signing? The FDIC found the industry average is just 6%. [2]
- What is the average number of times your team requests documents from a borrower during a single application cycle?
- Do borrowers have real-time visibility into their application status without contacting your team?
- How do you currently measure borrower effort, not cycle time, but the number of steps a borrower must take to move through your process?
- What share of started applications do not reach submission? Do you track this number?
Operational levers to prioritize:
You should assess application accessibility first. If 60% of your process requires non-digital steps, that is the highest-impact starting point. [2] Transparent communication costs comparatively little to implement and returns measurable satisfaction gains quickly. Repeated-information elimination requires integration work but directly reduces borrower frustration and internal rework simultaneously.
Metrics to track beyond traditional satisfaction scores:
- Application completion rate (started versus submitted)
- Document request frequency per loan file
- Borrower-initiated status inquiries per loan (a proxy for transparency gaps)
- Time-to-first-communication after application submission
- 90-day retention rates for borrowers who completed a loan in the past 24 months
Organizational and risk considerations:
Speed improvements must be accompanied by credit discipline. The BayFirst case is a reminder that demand response without risk design is not a sustainable operating model. [11] Any shift toward higher digital throughput requires compliance and control frameworks that move at the same pace as the process changes. Workflow redesign for hybrid relationship-plus-digital models also has staffing implications. Loan officers and relationship managers need tools, training, and clear role definitions that reflect a process where digital channels handle routine tasks and human expertise handles complexity and relationship depth.
The goal is not to replicate a fintech experience. Financial institutions have a trust and relationship advantage that no fintech currently matches on satisfaction outcomes. In 2024, net satisfaction among approved applicants was 70% for small financial institutions versus just 28% for online lenders. [4] The goal is to stop asking borrowers to work around processes that make the institution feel slower and harder to deal with than the alternatives. Borrowers have not stopped valuing the relationship. They have simply raised the floor on what a relationship requires.
Make the Relationship Work at Scale
Small businesses are not choosing between relationship and digital — they expect both. The institutions that win will be the ones that remove friction, increase transparency, and make it easy to do business without sacrificing human connection. That requires more than incremental fixes — it requires rethinking how the lending experience works. Baker Hill helps institutions modernize small business lending from application through decisioning and beyond, so you can deliver the speed, clarity, and confidence today’s borrowers expect.
Because in today’s market, the relationship earns the business — but the experience keeps it.
Sources
[1] J.D. Power. 2025 U.S. Small Business Banking Satisfaction Study. J.D. Power, 2025.
[2] FDIC. 2024 Small Business Lending Survey. Federal Deposit Insurance Corporation, 2024.
[3] McKinsey & Company. U.S. Small Business Banking Research. McKinsey & Company, 2023.
[4] Federal Reserve System. Small Business Credit Survey: 2024 Report on Employer Firms. Federal Reserve Banks, 2024.
[5] BAI. Small Business Banking Research. BAI, 2024.
[6] McKinsey & Company. MSME Banking Survey: Seven-Country Study. McKinsey & Company, 2024.
[7] Aite-Novarica Group. Small Business Lending: Digital Expectations and Borrower Friction Research. Aite-Novarica, 2022–2023.
[8] Federal Reserve Communities. Small Business Finance and the Role of Financial Institutions. Federal Reserve System, 2025.
[9] Huntington Bancshares. Lift Local Business Program Public Reporting. Huntington Bancshares, September 2025.
[10] Stearns Bank. Annual Report 2024. Stearns Financial Services, 2024.
[11] BayFirst Financial Corp. Public Disclosures and BOLT Program Reporting. BayFirst Financial, Q2 2025 and August 2025.
