TAB Bank is tapping into the services of a data analytics firm to streamline small business loan application processes and allow for faster decisions. The move comes as many large banks see small business loans as less profitable and risky, allowing tech companies like Kabbage, Lendio and OnDeck to fill a gap in the small business lending market.

The Ogden, Utah-based bank will use technology from data analytics provider Validis to import accounting information from programs that include Intuit, Abila and Microsoft Dynamics and Sage. The tool, which is called DataShare, works with more than 80% of accounting software programs. Justin Gordon, senior vice president of sales and marketing at TAB, said in a statement that DataShare will help TAB conduct a more thorough review of clients’ financial information. 

TAB was unavailable for comment before press time, but analysts told Bank Innovation that the partnership gives TAB a technology advantage over some legacy banks and a customer acquisition advantage over some startups.

Karen Mills, an author and a former administrator at the U.S. Small Business Administration, said partnerships with data analytics firms help commercial banks cut costs, and the fact that they already have a customer base gives them an edge over newer entrants into the market. “By using a partnership with a data analytics company, banks could determine which of their customers own a small business, take a look at the cash flow of the business and offer a pre-approved line of credit or other loan product before that customer has a chance to search for other nonbank alternatives,” she said.

However, bank partnerships with tech providers still may not be enough to fend off growth among startups focused on the needs and transaction flows of many small business customers, argued Brian Wolfe, assistant professor of finance at the University of Buffalo School of Management.

For many small businesses, getting a loan from a bank is still a significant pain point. A 2018 survey from the FDIC found just 23% of large banks and 11% of small banks allow small businesses to apply for a loan online. Companies like Square and PayPal are seeing growth in this area, fueled by their ability to develop a comprehensive picture of a loan applicant based on an analysis of every transaction.

Wolfe told Bank Innovation that the TAB partnership would work for small businesses with easy-to-understand finances, but tech companies, through their sophisticated underwriting models, may be better suited to reach newer companies. “It’s really a sign of moving away from relationship banking and toward transactional lending,” he said, noting that lending tech companies take e-commerce data that goes beyond net profit and can reach companies with irregular revenue streams.