Give small firms a reason to bank with you

Gone are the days when fledging business startups’ only option for loans was to knock on the doors of their local banks, hoping that someone would help them get tied into the financial system.

Now banks have to compete with an exploding amount of alternative lenders, even including crowdsource funding, set to double again globally this year, to $34.4 billion, according to Massolution’s 2015CF—Crowdfunding Industry Report.

Moreover, in their own ways, Facebook, Pinterest, Twitter, and a host of other social media platforms are helping small businesses launch every day. Many of  these fledgling firms bypass banks altogether and opt for alternative payment app solutions such as Square.

So how can a bank attract—and more importantly retain—small businesses so they can grow to buy even more sophisticated bank products and services?

By also offering something that many of the alternative sources can’t—ongoing advice from relationship managers who take the time to get to know their clients’ businesses, help them develop achievable goals, and stand ready with more sophisticated products as they evolve.

Making a relationships meaningful

Of course, relationship managers supporting more than a hundred clients don’t have the time or energy to give all-out help to everyone in their book, so banks must develop certain parameters to ensure they are betting on the right horses that could ultimately bring more business to the bank.

Relationship managers should follow at least three imperatives to retain and help grow their small business clients:

• They should be able to develop, refine, assess, and make recommendations in synch with their clients’ business plans.

• They should be able to determine and recommend financial solutions appropriate for each and every stage of the business life cycle.

• They should be able to evaluate, analyze, and determine their clients’ current, projected near-term and long-term threats and opportunities.

Relationship managers should not be expected to have accounting expertise, but they should be able to look at a startup’s business plan from a “financial partner” perspective. They should be able to make recommendations about the types of banking solutions they should be thinking about and planning for the next six to 12 months.

That doesn’t happen too much in the industry, but it should. For any bank that can do this, it would definitely be a brand differentiator and create greater loyalty.

The key is to create rigorous touch points throughout the relationship management cycle, and not just when problems crop up or when higher-than-average balances within the bank’s analytics system trigger a reaction.

By working closely with startups, relationship bankers would have better knowledge about how their business are progressing, and could call upon them even when the bank’s analytics systems aren’t triggered. They may find that their clients have deposited some of their money in other bank accounts.

Managing the growing client’s relationship

If the startup has grown large enough, their relationship manager can get them to the right area of the bank that can better handle their more sophisticated needs.

If the bank is too small to meet all the expanding company’s needs, then the relationship manager should still explore how that bank can still have a piece of the pie. This may range beyond the original business-side relationship, including personal solutions for the business owner with whom they’ve developed close ties.

Bankers should also be able to assess their clients’ long-term threats and opportunities. Do they think they are going to pay their line of credit in full in two years, or be termed out and put into an installment loan? Does the client currently have a big squeeze on cash flow that would not enable them to pay off their line of credit? What other types of solutions could help them better succeed?

These are just three simple, but often ignored, strategic imperatives that—if executed well by relationship managers—could help banks better compete with alternative lenders as well as increase revenues for both banks and their clients.

Where to concentrate resources

But relationship managers have to make a decision where they invest their energies, as there are only so many hours in the day and so many businesses.

That criteria can be based on their bank’s business model, particularly if it caters to niches, such as serving doctors or attorneys. Bigger banks may have relationship managers within divisions that serve niches, but smaller banks that do not have the wherewithal to create specialized divisions must create other parameters to sort out which client deserves more time and energy.

Perhaps they could focus on helping small businesses that have developed a product markedly distinct from others and have a solid plan for marketing it, or firms that plan to sell commodity products at a more competitive price, in ways that can still generate profitable margins.

Bottom line: Relationship managers should never neglect their small business clients, but have a rigorous and disciplined process in place to manage those relationships. Proactive strategies can enable banks to better compete with alternative lenders and also groom potential breakouts.

Today’s trendy food truck operator just might evolve into the next hip downtown restaurateur.

About the author

Tami Maupin Buttrey is a practice director for CCG Catalyst, a bank consulting firm. Contact her at [email protected]