Many community banks have adopted the view that snagging small-business customers is a marathon, not a sprint.
Small businesses can be more profitable than consumers, industry experts say. Still, banks must become trusted advisors to those companies as they seek to sell products and services to the owners. Doing so can require time and skill.
To be sure, banks often focus on such a strategy. But soft loan demand and low interest rates are placing more pressure on banks to raise their game with small businesses. Some banks are changing the look of branches and offering new resources to better serve these clients.
"Banks understand that, in the future, easy problems will be solved online and through call centers," says Nick Miller, president of Clarity Advantage, a consulting firm.
"When customers are coming to a branch, they need something that is more advanced, like discussing issues around succession or funding a new business," Miller adds. "That's the vision of the industry but banks are still struggling to work on ... being a trusted advisor."
Efforts to court small businesses are often visible when banks renovate their branches. Some bigger banks are turning branches into "hubs" that specialize in small business, says Kevin Travis, a partner at Novantas, a management consulting firm for the financial services industry. Some banks are revamping branches to include conference rooms to let small businesses host their own meetings, Travis says.
Seacoast Banking Corp. of Florida (SBCF) in Stuart has opened offices that only handle transactions electronically or by ATM with a focus on advising Generation X business owners. Lead Bank in Garden City, Mo., is including more space in its next planned branch, set to open in September, for collaboration with small businesses.
A small percentage of business owners consider their banker as a source of information, says Chip Higgins, business banking team leader at Pinnacle Financial Partners (PNFP) in Nashville, Tenn. That perception must change, and Pinnacle has been trying to do that since it was founded in 2000.
Most of the $5.5 billion-asset company's 33 branches have learning centers that look like small auditoriums with audio-visual equipment. The spaces can be used for presentations for small businesses, or even consumers, on a variety of topics. The design was meant to touch on the bank's core values of learning and partnership, Higgins says.
"Every business is going to need something," Higgins says. "Our role is to completely understand where they are going and what their needs are. If we know that then we know what to suggest to them."
Banks should be cautious of a recent trend where branches are more open and lack traditional teller lines, says Steven Reider, president of Bancography, a consulting firm for financial institutions. Business owners may not know where to go to complete a transaction, or there may be inadequate space for confidential discussions.
There are easy fixes for banks that want to make their offices more conducive to advising small business clients. It could be as simple as replacing traditional desks with ones that are curved which allows a banker to sit next to a customer to look at documents, Reider says.
"Traditional branch furniture means the customer sits on one side and I, the banker, sit on the other side and know everything and parcel out information as I see fit," Reider says. "Today, we have tablets and flat-screened computers where the banker and the customer can look at the options together."
Smaller banks are also looking at ways to offer a wide variety of nontraditional banking services to small businesses. The $108 million-asset Lead Bank is providing small-market M&A advisory services. Enterprise Financial Services (EFSC) in Clayton, Mo., offers Enterprise University, which provides free classes to small businesses on topics such as marketing strategy and social media.
About 18 months ago, Pinnacle began offering weekly classes to small-business owners, called "mastermind groups," that are led by a financial advisor. About a dozen people attend each session over eight weeks. The most popular topics are marketing and "people," which covers human resource issues. This is also a chance for the owners to network.
"Every business owner is trying to figure out how to take their business to the next level," Higgins says. "We're finding good energy and engagement" with the classes.
Though more banks are trying to become small-business advisors, few are truly successful, experts say. Banks are "good at being banks," Travis says. "They are not tax specialists, lawyers or accountants."
Also, a bank's culture or incentives are often misaligned for an advisory model, says Lynn David, president of Community Bank Consulting Services. Becoming a trusted advisor to business owners takes time. Meetings don't always translate into sales. Still, most employees are usually rewarded for making quick sales, experts say.
"Banks are usually the first ones to admit they are bad at it," David says. "But they have also never made a conscious decision to get better at it."
Often, branch managers lack the necessary skills to target small businesses, and their incentives exclude rewards for selling a certain amount of small-business products, Miller says. This may lead to a greater focus on pushing retail products, he adds.
Finally, many banks fail to provide excellent service on core products that small businesses value, such as receiving credit at a good price when needed, Travis says. A bank should make sure it has those areas covered before trying to be innovative elsewhere.
"If you don't have the basics covered, then the rest of this can be distraction from getting that right," Travis adds.
Jackie Stewart is a reporter for American Banker.
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