Small Business Banking - The difference of the human touch
Entrepreneurs who visit the Web site of Washington Mutual, the largest savings and loan corporation in the United States, will find a business planning center that offers information to guide them through the major stages of ownership: starting a business, managing and growing a business, and exiting a business. Topics range from bookkeeping basics to marketing tactics. Similarly, the Web site of HSBC, “the world’s local bank,” offers a small-business section that allows owners to find solutions to various issues, based on their location.
U.S. banks are beginning to see the increasing importance of small businesses and are opening their doors a little wider to this lucrative market. Their welcome includes a heavy dose of the human touch, for not only are bankers creating online resource centers for entrepreneurs, they also are forming partnerships with other organizations to reach potential small-business customers. For example, in conjunction with the U.S. Small Business Administration, HSBC sponsors small-business seminars nationwide, covering minority- and women-owned business programs as well as business and marketing plan development.
One possible reason for the small-business sector’s new appeal to banks is the relentless growth in the number of businesses in the sector, with minority entrepreneurs leading the pack. According to the latest U.S. Census Bureau data, the percentage of minorities who own businesses is increasing at a much higher rate than the national average of 10 percent. Between 1997 and 2002, the number of Black-owned businesses increased by 45 percent to 1.2 million. In 2002, receipts for Black-owned businesses totaled $92.7 billion, up 30 percent in the five-year period.
While reaching out to small businesses is a positive step for many U.S. banks, often it is not a carefully executed step. A disconnect exists between what banks offer and what small-business customers need. A 2006 J.D. Power and Associates “Small Business Banking Satisfaction Study” found that although small businesses contribute significantly higher revenue to banks than retail customers, the incidence of problems experienced by small businesses is considerably higher. More than 50 percent of small businesses reported problems, compared with 31 percent of retail customers. Processing and transaction errors, such as incorrect deposit details, are the most common.
But the study also found that when experiencing problems, customers who identify a loan officer or bank manager as their primary contact are more satisfied. Dennis Hawthorne, a Brooklyn, N.Y., business owner, is a case in point. Hawthorne owns Dennis Shipping, a shipping company that serves the New York tristate area and the Caribbean. A Chase bank customer for more than 20 years, he insists that small-business owners must take the initiative to establish a relationship with their branch or account manager.
“When there is a problem, I simply call the branch manager and it is solved,” he says. This is one of the main reasons why he reports a high level of satisfaction with Chase’s services. “With my bank, there is a certain human interest, which one does not necessarily associate with banks. I have a certain level of trust and confidence that my needs are important and not just [my] sales numbers.” His relationship with Chase includes a business account, a small-business loan, and a commercial mortgage.
These days, banks are offering small-business owners more than just the basics. Entrepreneurs now have access to payroll, tax and financial management services, as well as a growing portfolio of small-business credit cards that come in handy when owners need products but are low on cash. Larger banks offer cards that yield savings on everyday business purchases at Monster.com, TurboTax, Microsoft and DHL, as well as travel benefits. American Express offers business owners a choice of credit cards depending on their business needs, with savings rewards of up to 25 percent on expenditures with FedEx, Hertz and other service providers.
Business lines of credit are increasingly popular. Last year, for example, Bank of America launched its Business Credit Express product as an alternative access to capital. Through this product, small-business owners can access an unsecured line of credit of up to $100,000. They can use the line as often as necessary to satisfy immediate credit needs.
The Right Fit
Having new products and services is great, but entrepreneurs need someone to inform them of the most appropriate products for their business. A cookie-cutter approach to small-business banking is not sufficient. Developing a personal relationship with bankers is essential not only for getting a loan, but also for dealing with hard times. Taking the time to get to know bankers is an important ingredient in demonstrating “character” to lenders, according to the Service Corps of Retired Executives, a nonprofit organization whose members serve as counselors and mentors to small-business owners nationwide. The group contends that a branch manager who fully understands the needs of a business client is in a better position to make recommendations and guide the client through the major phases of business ownership as well as offer assistance during hard times.
Hawthorne agrees. “It is important for business bankers to offer entrepreneurs insight and guidance and not just products and services for the simple fact that it makes my banking experience a one-stop shopping facility,” he says. “I can draw on the expertise of my banker in areas like taxes, retirement planning [for my employees] and other long-term financial planning.”
Finding that “one-stop shopping facility” is a challenging task, especially when small-business owners are just in the beginning phase of business ownership. Still, it is important for business owners to find a bank that suits their needs. According to the 2006 J.D. Power and Associates study, banks that are proactive in contacting their small-business customers about new products and services, or about the customer’s account needs, generally receive higher satisfaction ratings. However, 44 percent of small businesses indicate they have not been contacted at all by their primary bank.
To succeed, small-business owners need to apply their entrepreneurial spirit to being proactive in creating and maintaining strong ties with their bank. First, however, they should shop around until they find a bank with the right fit for their business. More than developing a good relationship with branch managers, Hawthorne says, business owners must practice fiscal discipline by avoiding overdrafts, managing their credit score and avoiding account abuse. He also advises entrepreneurs to take advantage of Internet banking, which facilitates banking and allows for easy account monitoring.
Tips for Finding the Right Bank
The Service Corps of Retired Executives (www.score.org) offers the following tips for finding the right bank foryour business and maintaining a solid relationship with that bank.
- Understand the basics.Large or small, banks are interested in the same fundamentals: cash flow, collateral and the viability of your business.
- Sell the bank on your company.Provide solid information on its financial history, your business plan andinformation about the kinds of loans you need and the terms you want.
- Look for a good fit.Let prospects know what kind of a relationship you want with a bank.
- Ask the right questions.Find out where decision making takes place, how many people you will have todeal with, and whether the bank is open to meeting with you and your advisers fairly regularly.
- Commit time and energy to developing your relationship with the bank you choose.Get to knowmore than one person at the institution, so that if your bank is merged or acquired, someone familiar withyour business will probably still be around.