Microbusinesses, defined as firms with annual revenues of less than $1 million, constitute 90% of all businesses and thus represent a significant opportunity for banks. But given the small size of loans involved in this segment, how does a bank profitably serve these customers?The following is a suggested ten-step process for improving branch sales and service to Read More
“Why should we bother with small businesses? Your own numbers say most banks lose money from small business loans.” – Retail bank head, Northeast “We are much more interested in the middle market than small businesses. We can make larger loans at a similar cost base. We are avoiding small business lending.” –Retail bank head, Southeast “We Read More
Bigger is better may not have been what the politicians and regulators envisioned post-financial crisis but that’s what we now have in the banking industry. In short, big banks in the United States have closed ranks and gotten much bigger over the past decade, while smaller banks have either merged their way into the middle tier ranks, Read More
In recent years, many banks have made significant investments in the commercial business to drive growth and to deepen customer relationships. These investments have come in the form of hiring of relationship managers, adding treasury management products and staff and installing new technology. At the same time, interest spreads on commercial loans have declined and capital and Read More
Many banks are losing money with every small business loan they make. High origination costs and increased processing and infrastructure requirements often mean that loans of less than $100,000 end up being value destroyers for a bank’s bottom line. High costs have also opened the door to alternative lenders, both as competitors to banks and as bank Read More
For years banks have recognized that the small business market represents significant opportunity to drive both balance sheet and earnings growth. The reasons are straightforward. First, the small business market is large and growing. Currently there are over 5.1 million businesses categorized as “small,” representing 90% of the total number of businesses in the U.S. Moreover, 500,000 Read More
One the most famous phrases in U.S. Supreme Court history comes from Justice Potter Stewart’s concurring opinion in a controversial 1960s case. “I know it when I see it” is his now infamous threshold for obscenity. In some respects, this is how banks approach small business. They have a vague idea of what they’re talking about, but Read More
The small business lending market is one of the few bright spots in banking and can have a significant impact on a bank’s bottom line. But it’s also not a business to approach haphazardly. The banks that are most successful in this area have a clear strategy for the types of loans they are willing to write, Read More
Despite their number and economic impact, small businesses have historically found few bank products outside of loans that meet their unique needs, with consumer products often offering too little and commercial products offering too much. However, a better understanding of small business customers by bankers is helping change that. “Small businesses have cash flow, payables, payroll and Read More
Baseball fans know who hit the most home runs in a single season. Depending on your age and the purity of your perspective on the game, the established home run leader is Babe Ruth (154 games), Roger Maris (with an asterisk denoting 162 games), or Barry Bonds (73 home runs with an asterisk denoting likely steroid use). Read More
In this hyper-regulated and politically correct world, many banks will not admit that, at their core, they dislike banking small businesses. With actions speaking louder than words, it seems apparent that despite all the hype and “We love small business” signs in the branch windows, many banks either ignore small businesses or are clueless about what it Read More
Most institutions interested in expanding business loans to customers and prospects lament the fact that they lack the ideal complement of top tier bankers. Too often, many of their existing bankers exhibit mixed effectiveness. There are two options: wait until one assembles the ideal banker force, a process which can take years, or deploy analytical direct marketing Read More
At the close of 2013, the Thomson Reuters/PayNet Small Business Lending Index (SBLI) reached its highest point in seven years. The SBLI has proven to be a strongly correlated indicator of GDP by up to five months in some cases since small businesses traditionally are more adept at responding to economic conditions than their larger business counterparts. Read More
The combination of increasing regulation, continuing sluggish economic conditions and rapidly changing consumer expectations is shrinking the revenue potential of the demand deposit account. This stark reality is leading retail banks to focus more on business customers. Deeper market segmentation, bundling of service offerings, understanding the needs of businesses and strong relationships are the keys to growing Read More
The banking industry has sadly lost its small business banking mojo in the past five years. Historically, community banks and national players alike have viewed small business as a “golden goose” for the future – a segment ripe for revenue growth and the expansion of innovative products and services. Then a Great Recession stopped this energy in Read More
Just as baby boomers are predicted to have a large impact on entitlement programs, so are they also poised to be a primary driver of small business formation in the next decade and beyond. This has implications for lenders as they seek to grow their small business portfolios. While the small businesses landscape continues to be rocky Read More
Earlier this year, Bank of America announced that it had surpassed one million small business mobile banking users, representing one-third of the institution’s three million small business banking customer base. This is likely a continuing trend among the nation’s 28 million small business customers. Already, these customers use mobile services more frequently than the average retail customer, with almost Read More
Last month, Inc. reported that small business owners are more optimistic than they were a year ago, and “owner optimism tends to spur hiring and expanding … As many as 76 percent of small business owners said the second quarter met or exceeded expectations, and half expect the third quarter to be even better than the second.” Read More
When it comes to utilizing technology, small business banking customers are definitely traditional in their preferences: branch visits and personal service still rate highly with them, online and mobile banking less so, and they’re highly fee-sensitive, all of which makes them more costly to serve than retail customers overall. But when it comes to institutional loyalty and Read More
For the moment, Kabbage Inc. is only a blip on the radar screen of banks that specialize in small business banking. The Atlanta-based alternative online lender, three years old and funded by venture capital, currently has about 100,000 customer accounts and $200 million in annualized credit advance volume. It is one of several startup lenders that have recently Read More
