How to Make the Most of Small Business Relationships

Alan Jackson December 3rd, 2014

Of the many lessons American small businesses learned from the Great Recession, the idea that bigger isn’t always better has dramatically impacted their perceptions of the banking industry. In their own operations, of course, small business owners already knew that size isn’t always the differentiator that secures customers. In fact, it rarely is.

Larger financial institutions may once have been viewed as more secure merely by virtue of their size, but that hasn’t been enough enticement for SBOs seeking a more personalized relationship. Community banks are the main source of loans for small businesses; community banks with assets of less than $10 billion account for nearly 60 percent of all small business loans, according to the Independent Community Bankers of America (ICBA).

What’s more, the local nature and smaller size of community banks make them appealing not only to current entrepreneurs but prospective ones as well. The 2014 ICBA American Millennials and Banking Study finds that:

  • Americans seeking a business loan choose locally owned and operated banks first.
  • 46 percent of Millennials, 34 percent of Generation X, and 17 percent of baby boomers are interested in starting their own small business.
  • Nearly a quarter of Generation Y already earn at least some of their total income from a business they own or in which they have an interest, the study showed.
  • And the most telling statistic from the study? Sixty-six percent of respondents said they want more personal relationships with their financial institutions.

Isn’t that great news? These people want a relationship and they feel like a community bank is the best place to get one.

With 26 percent of SBOs surveyed in the NFIB’s November small business economic trends report saying they intend to increase capital outlay, and 10 percent planning to hire more staff, community banks have an opening to do more business in this segment.

Is your community bank prepared to maximize small business relationships? Do you know what small businesses want from a financial institution?

Here are three key things small business owners want from community banks:

A personal relationship

Perhaps the most telling statistic from the ICBA study is that 66 percent of respondents said they want more personal relationships with their financial institutions. Small business live and die by the personal relationships they cultivate with their own customers. Superior products and services alone aren’t enough to allow small businesses to capture and retain customers. Successful SBOs know they must nurture personal relationships that meet the unique needs of their clientele.

They expect the same level of personalization from their community banks. Your community bank can’t operate like a big financial institution if it’s to earn the loyalty of small business owners. Knowing they can walk into a local branch and apply for a loan in person, with someone who already has knowledge of them and their business, is a key differentiator for SBOs.

Product flexibility

Small business owners need access to a variety of products, just like larger corporations do. In its spring 2014 small business credit survey, the New York Federal Reserve found that the credit products that SBOs were seeking included lines of credit (70 percent), small business loans (52 percent), credit cards (44 percent), debt consolidation (23 percent) and trade credit (17 percent).

Cash flow is always a challenge for small businesses. Community banks must offer a flexible suite of business products that can support a small business owners’ capital needs for a variety of reasons and through every stage of business development and operations.

Easier application process

Fifty-seven percent of small businesses surveyed by the New York Fed said they hadn’t applied for credit. Impersonal, complex application processes almost certainly account for some of that reticence. In fact, a survey by financial information company Sageworks seems to support that likelihood: for small businesses under 10 years old, three out of four owners said they had never applied for a business loan, and 9 percent said the time-consuming nature of the loan process kept them from applying.

Community banks are uniquely positioned to streamline the loan-application process for small businesses. While still meeting due diligence requirements, community banks can also incorporate human judgment and personal knowledge of applicants into the approval process. An easier application and more human review processes speak directly to SBOs’ craving for a more personalized experience from their banks.

This content is accurate at the time of publication and may not be updated.