New Businesses Merit Attention and Support; Making the Effort to Assist Entrepreneurs Can Bring in Healthy Profits for a Bank
Chambers, J. Richard, American Banker
Why should commercial bankers spend valuable time serving the needs of new and emerging business? My answer is simply because small businesses are profitable for those banks who meet the challenges of this market.
Advocates of small business are quick to point out that net job creation in our society and innovations in business products, services, and methods are, in general, the outgrowth of small business. The rate of new business formation combined with cottage industry formation and a burgeoning growth in the ranks of professional occupations point to a growth market for banking services.
However, simply to identify another growth market may not pique your interest in its pursuit. Perhaps the high performance in return on assets and return on equity of banks with a concentration on the small business market will provide the incentive.
Small businesses and their management are our two highest priorities. Therefore, a proportionate concentration on this market is included in the marketing plan for each of our lending and service offices as well as the management-by-objectives plan for each customer-contact banker.
All borrowing and nonborrowing accounts are assigned to a bank representative who will call on them in the course of his/her solicitation effort. The call program and direct referral prospects from satisfied customers are the cornerstone of our identification and solicitation program.
We compete against several larger financial institutions, each of whom has centralized credit approval. Our system is to place relatively high credit authority in each office based on the training level and loan loss experience of the lenders. This has proved most satisfactory in dealing with small businesses who need banking answers.
A hypothesis that guides our small business approach is that the success of our customers is the best bet for the bank to succeed. Therefore, in addition to proper customer financial services, the nontangible services of introducing the customer to vendors, service purveyors, or others who may enhance our customer's business is important.
We often find that customers A and B could do business with one another but have never had the spark that our introduction may provide. In a way this is old hat, but goes back to the concept that to serve small business the bank must be an advocate, counselor, team member, as well as lender, data processor, accountant, and financial doctor.
Emerging businesses need so much service that the bank must not look upon them as an imposition in its day-to-day routine. Bankers sometimes refer to the day-in and day-out customers as interruptions, while in reality the activity of their banking transactions is paying the bank's bills if the bank has properly priced its services.
The account officer must budget time for the small businesses and must teach the small business customer how to best work with the bank in terms of financial information and service questions.
How does dealing with these emerging companies work for us? A recent case in point is a restaurant company that our bank had nurtured from its inception. The principals had previous restaurant experience with large organizations but had gone into business for themselves as a franchisee of a relatively new franchise concept.
As their expansion occurred, the company approached several of the larger lending institutions in the market for a $3 million revolving credit facility. While other institutions were still studying the company, our familiarity with the customer allowed us to make a commitment for the credit facility.
In the real estate area, syndications have become very important in our marketplace. We have been able to deal with the syndicators themselves, in addition to being active in financing investor participation in limited partnerships. And by having a coordinated marketing plan, the bank has been able to convert over 60% of the noncustomer investors to depository customers. …