Hey bank executives...If your current small business clients found a simpler and more dependable source of funding their business, would they stay with your bank? Based on my recent experience with banks and small business owners, I'm betting their answer would be a loud..."Hell No!" In fact, if given a choice, most small business clients would love to kick their current bank to the curb...if they had a choice. But why aren't your small business clients more loyal to your bank?
Let’s face it…banks really don’t want to deal with small businesses. Oh they say they “love small businesses” but their actions and policies really say… “go away.” Sure banks want small business deposits but that’s it. Banks are much more interested in the middle market clients than with the “mom and pop” small businesses. They can make larger loans to the larger businesses at a similar cost base. Plus, dealing with those “unsophisticated” small business owners is not really cool.
As community banks continue to struggle to grow deposit, loans and revenue, there is a bigger need to focus on the small business segment. But community banks have two major problems that will make working with small business a major challenge.
Problem #1: Community bankers are not equipped to work with small businesses. Bankers working with small businesses need to be retail-oriented but understand how small businesses operate. These bankers don’t have to be accountants but they need to understand (and care about) how cash flow and funding challenges impact the small businesses. And most of all, bankers working with small businesses must be extremely proactive in their selling approaches. They’ve got to regularly get out of the branch and work with the small business client on their turf.
Problem #2: Community banks really don’t like making small business loans. Unfortunately, most banks will lose money on low-dollar small business loans but having a dependable lending partner is not an option for small businesses. Therefore, community banks have got to find alternative cost effective ways to help small business clients fund their businesses. The great news is there are Alternative Finance Companies (AFC) and the Small Business Administration (SBA) to help community bank with small business loans. Sure it’s difficult to navigate this bureaucratic maze but the payoff for doing so is substantial for the bank and the small business client.
If your community bank wants to improve your small business client’s loyalty and build a profitable lending partnership, then you will have to correct these two problems. Or you can just admit that you don’t really want to do business with small businesses and watch them walk out your bank’s doors.
Contact Clarence Fisher at Cfisher@thesalesinstitute.com if you would like more ideas on how your bank can improve its small business loyalty.