Banks Competing for the Business of Small Businesses

The NFIB just released findings from its second poll related to small business and banking. I wrote a post on the first poll last week. This new poll finds that American bankers are stepping up their competition for small-business accounts.
First, a note of caution to all you hungry young commercial loan officers out there. Entrepreneurs don’t like to change banks. It is disruptive and a hassle, and can be expensive if there are loans involved. Only one in 10 small-business owners have switched principal banks in the last three years, according to this survey.
But, bankers don’t give up easily. To progress through the ranks of Vice Presidents of “this” and “that,” they have to expand their portfolios. Slightly more than 40 percent of the owners surveyed said they have seen an increase in banks courting their business. Nearly three-fourths of those owners cited a noticeable increase in mail solicitations and advertising and an almost similar share were aware of the appearance of more places to bank. Nearly two-thirds of those with fewer than 10 employees got phone calls from bank telemarketers, 65 percent were made aware of financial products and services targeted to their sector and 57 percent reported in-person contacts.
Sometimes it is the entrepreneur who goes shopping for a new bank. My experience is that it is usually when we are unhappy with an answer we just got on a loan request. The NFIB survey found that twenty-one percent of small business owners shopped for a new principal financial institution in the past three years. But, entrepreneurs need to remember that all bankers basically think the same way. Of those entrepreneurs who went shopping, only one-third actually switched.
Incredibly, 5 percent of small business owners said there were too few alternatives to attract their business. Those folks really need to get out more. The old saying “There is a bank on every corner” needs to be modified a bit. It seems that now there is a bank on every corner and a half a dozen in between each of them.
Among those who did find a new principal bank, service and credit issues were the key motivators driving them. Sixty-four percent changed to obtain better service quality; 47 percent pointed to the number and type of services available elsewhere. Half noted the expectation that they could more easily satisfy their credit needs at a new bank and slightly more, 53 percent, said they believed the new institution being considered would give them better loan terms and rates.
In the past, owners have expressed consternation about the considerable merger and acquisition activity in the banking industry, but less than one-fourth of those who switched banks cited that as a reason for the change. While a merger may not directly motivate someone to change banks, the outcomes of mergers can be the issues they do cite as reasons for changing. Service can get worse, loan officer turnover increases, and terms can get tighter as banks get bigger and more bureaucratic in their practices.
Slightly more than 41 percent said they use a small bank, one with assets of $1 billion or less, while the share reporting banking at very large institutions — those with more than $10 billion in assets — was just a few points less, 38 percent. Only 15 percent had their accounts handled by very small banks holding less than $100 million in assets. Nearly half, 47 percent, said they still use only one financial institution exclusively. These results are a bit surprising, as the common wisdom is that smaller community banks work better with small businesses.