In the current economy, increasing business relationships may seem unfeasible with so many companies cutting back on their staffing needs and growth. However, the reality of the situation is that there is a niche market available for local, community banks to increase their business by targeting small businesses.
Small businesses account for the majority of the gross domestic product in the United States. Their needs are often overlooked by large national banks and lenders, especially in the current economy where many of the larger lenders are looking to focus only on the accounts that are profitable in the hopes of minimizing their losses.
One very reputable national lender, Capital One has decided to cancel their Home Improvement Program, which provided small home improvement loans to consumers through small businesses like the Maryland based company Hallmark Windows and Siding. This small business, founded by President Zeke Hall, has provided services to the Washington, DC metropolitan area for over a decade.
Although financing only accounts for five percent of his sales, it oftentimes can make the difference between signing the contract that day or losing a potential customer. Zeke was happy with Capital One’s program, which gave the sales representatives the ability to prequalify customers over the phone the day they went out for the free estimate.
Presently, he has yet to find a replacement for Capital One’s program, but he—like many small business owners—look for the following in a lender:
•Financing: Competitive interest rates are an absolute must, because if a customer is likely to have a better interest rate on a credit card, they will choose the credit card.
•Make it easy: Not only getting the credit application approved, but after the sale it’s important to always have access to the lender and for the customer to be able to have their questions answered quickly and without hassle.
•Reputable: Because of the financial crisis, customers are very wary of financing, so it has to be with a reputable brand that they recognize so that they will feel more at ease with the transaction.
•Privacy: Zeke wants his customers to be completely satisfied. If customers start getting harassed by the lender, it reflects poorly on his company. So he wants a lender that will keep his customers’ information private.
One community bank in the Washington, DC area has always sought after small businesses and nonprofits. City First Bank of D.C. has made it their focus to revitalize and reinvigorate urban communities, because they recognize that small businesses create a significant portion of the new jobs.
Led by President and CEO Dorothy Bridges, City First Bank has found that most businesses have been cautious about seeking new loans. Businesses are watching and waiting to see what is going to happen with the new administration and are hopeful, with the stimulus plan, that they will receive a government contract. Despite this waiting for movement mentality, there is still a demand for loans from City First when local businesses see a unique opportunity to purchase owner occupied commercial real estate. City First also sees requests for working capital loans that will allow for growth and operations.
Many community banks may be concerned with lending to small businesses because they are afraid that the business will not be able to pay back the loan. City First Bank of D.C. mitigates that risk by scrutinizing a small businesses cash flow. They take the time during the underwriting process to make sure that the small business will be able to repay the loan and then examine the accounts on a yearly basis to ensure that the loan is still on track. Of course they do get situations where they will need to adjust the loan, but for the most part they are careful to make sure that the loan is appropriate for the business based on their operations.
Similar to most banks, City First is reducing their loan maturity period. What used to be a five year loan is now only three, which gives the lender the opportunity to reevaluate the business.
Increasing relationships with small businesses starts with finding them. City First Bank participates in many programs that are offered by the Small Business Administration (SBA). Many small businesses that are looking to grow turn to the SBA for their knowledge and resources. Many community banks offer SBA loans and so it’s important to seek out business relationships with SBA members. Identifying opportunities through networking and partnerships, even with the national banks, will help to increase sales leads.
After leads are identified, it’s important to meet with these businesses on a regular basis to build the brand awareness for a community bank. Any financial institution that desires to increase small business relationships needs to understand that small businesses have special needs. Just because they aren’t ready to expand that week or month does not mean that meeting with them should not become a priority. City First Bank recognizes this and believes that you have to remain in constant contact with the business and continue to inquire about their needs. They recognize that there’s a gestation process, but they are willing to wait and have been rewarded with ties to the community because of it.
With the financial industry always changing, now is the perfect opportunity for community banks to increase their relationship with small businesses. However, more importantly the key to a successful relationship is communication. More than selling the financial institution’s product it’s important to listen to the needs of the business and match the product that is the right fit for them.
