Traditional financial institutions are tightening their credit standards amid economic uncertainty and tariffs, presenting an opportunity for fintechs to gain small business market share.

More banks tightened standards for commercial and industrial loans to large- and middle-market firms in the second quarter compared to Q2 2024, according to St. Louis Federal Reserve data.  

“We have taken several credit-tightening actions that have reduced our origination volume and improved our credit performance, which should position us well if there is an economic downturn,” Charles Scharf, chief executive at Wells Fargo, said during the bank’s earnings call on April 11. 

Wells Fargo reported $533 billion in commercial outstanding loans during Q1, compared with $542 billion in Q1 2024. 

Fintech opportunity  

Fintechs are usually eager to take market share when the opportunity arises, Matt Sekerke, macro economist at John Hopkins University and managing director at consultancy SEDA Experts, told Bank Automation News. 

Lower regulatory oversight enables fintechs to take more risk than highly regulated banks, making them a good alternative lending source, Sekerke said. 

SMB banking provider Bluevine, for one, is stepping in as a capital provider as larger banks scale back lending, Aditya Narula, senior vice president and general manager of lending and credit, told BAN. 

“I do know for a fact that some of the larger banks have started tightening their lending box,” Narula said. SMBs that may otherwise have good credit are getting “squeezed out” by larger lenders and are looking for alternative funding sources, he added. 

To lend in uncertain economic conditions, fintechs use more than credit scores to assess lending risk, he said. For example, AI can be used to assess cashflow statements, analyze checking accounts, track spending patterns and evaluate headwinds a business might experience to help underwriters better understand and assess risk. 

However, as fintechs move to gain market share, it doesn’t mean the risk they are taking on is going to be much different, Sekerke said. 

This strategy for fintechs may not be well advised, Sekerke said.  

“Just because you can do something doesn’t mean you do it,” he said. 

Markets experienced a similar phenomenon after the 2008 financial crisis, Sekerke said. Many banks were held back from lending or taking risk through higher capital requirements and the Dodd-Frank Act, which led to a boom in private equity and private credit markets, he said. 

“Deals in private equity markets can be very tricky because they are highly levered with debt and require constant liquidity to function,” Sekerke said. Lack of proper regulatory oversight can add fuel to the fire if things go south — which fintechs could experience.