What causes a small business to choose one bank over another? The easy responses are: simple and competitive pricing, low fees, relationships, etc. These elements are certainly important, but what we were most interested in determining were a few of the less obvious, and less reactionary characteristics prospective business clients look for when searching for a bank for their business. Those elements that, when understood and handled well early by a financial institution, can set them above the competition.
National vs. Community Bank The first consideration is whether the small business should go with a National or Regional Bank. Both have their strengths and weaknesses, and businesses have to determine which best fits their needs.
As a community bank, you will have greater knowledge of the regional market conditions important to local business clients. You also have greater ability to provide more individualized service, greater access to personnel, and can place more emphasis on character, rather than relying solely on credit score modeling. These are things small business owners look for in a bank partnership, so play to your strengths.
Decision Making Ability of the Banker The second consideration relates to whom the business is dealing with directly, whether it be in the initial search period or once they become a customer. The business has to be confident that the Banker or Calling Officer knows the bank’s products through-and-through. That they will have the ability/authority to get the job done, whether it be obtaining a loan or providing fee-based services. They will want to know the largest loan their banker can approve without requiring authorization from management. Lastly, businesses want to find a banker who takes the time to understand their industry, including the businesses creditworthiness and borrowing needs.
For the reasons outlined above, you as community bankers have a real opportunity to excel in this area. Proper training, frequent personalized communications, and quick turn-around in problem solving will be very important here.
Will the Bank consider their Business a Long-Term Partnership? The third consideration also speaks to the relationship a business will have with its primary bank contact. A small business needs to feel that the banker, and by extension the bank, views their banking arrangements as a long-term partnership. Savvy businesses consider not just what they need in the here and now, but services they may require in the coming years. They will look for a banker that views a customer’s growing business as an opportunity to provide useful services, and will be understanding if or when the business suffers hardship. It must be said however, that businesses, much like personal banking customers, generally don’t appreciate banks that focus solely on upselling their existing customer base. Therefore, finding that ‘happy medium’ between customer service and sales will be necessary.
In addition to the recommendations above, one might consider introducing a ‘Company Vision’ discussion early in the relationship. This should not to be confused with demands for a specific business plan, financial projection forecasts, risk assessments, etc., but should simply be a conversation about how the business client views themselves, and what they hope to achieve in the near to long term. Determining the company ‘vision’ at acceptance, allows better understanding of future product/service need, and also shows that you value the relationship. Ned Miller with MZBIERLY Consulting Inc. offered up some possible questions for a visioning exercise. They include:
- How big will your business be?
- How will you measure your success?
- What will your most important products/ services be?
- What will make you unique?
- Who are your customers? How do you find them?
- If your customers were asked to list three noteworthy things about your business, what would they say?
- What kind of managers will you have in place?
- What do you do everyday? How much do you work?
- How will your company be perceived in the community?
- What will your suppliers say about you?
- How would your competitors describe you?
Are there Complimentary Services that Simplify Daily Business Operations Being Offered? Fourthly, a small business-banking customer will want to know what additional products and services will be offered, if they choose to move forward with the account opening process.
Straightforward and convenient processes are very important to growing businesses, so services like online business banking and mobile treasury/merchant services become great tools in attracting and maintaining business banking relationships. Bundling products and services based on customer needs can help demonstrate value and solidify relationships. However, it is important to recognize that with bank products and services becoming increasingly homogenous, providing a quality customer service experience will always be the deciding factor in customer acquisition and retention.
Bank Familiarity with Federally Subsidized Small Business Loans Lastly, small businesses will want to be confident that the prospective bank is well versed in federally subsidized loans and comfortable working within the confines of the U.S. Small Business Administration (SBA) loan system.
Discussing your understanding of this area early should go a long way in building that confidence. Keep in mind that some small businesses may not fully recognize what opportunities exists here, or what they may qualify for, so being proactive in explaining their options will demonstrate competence and build trust. There are numerous helpful resources both for banks and small businesses to be found at the SBA website (SBA.gov).
Given that Business Banking represents an increasing opportunity for community banks, we feel the topic deserves continued exploration. In particular we wish to discover:
- What issues may cause these clients to switch core bank service providers?
- What can banks do to mitigate attrition and attract new business clients?
Both of these questions deserve thoughtful and thorough answers, so we will be tackling each question respectively over the next couple of weeks.
Sources http://guides.wsj.com/small-business/funding/how-to-shop-for-a-bank/ http://www.mzbierlyconsulting.com/bank-sales-corner-blog/bid/86826/Best-Practice-for-Small-Business-Bankers-Ask-About-Their-Vision Marketing Financial Services – Building a Better Bank: Strategies for Implementing a Marketing Process, Bruce A. Clapp, 2009 American Bankers Association