Playing to Your Community Bank’s Strengths to Win Over Small Businesses

A recent Cornerstone analysis of 4,700 banks and credit unions revealed that only about one in seven banks and credit unions had a concentration in small business lending of at least 20%.

“That’s a huge opportunity,” John Meyer, senior director with the banking consultancy,” said in an ABA Banking Journal article. About 70% of 1,265 small business owners, also responding to a Cornerstone survey, indicated they wanted to work with their local banks.

In some ways this is unsurprising, as community banks have distinct strengths that make them a perfect resource for growing small businesses, which present a major opportunity, as evidenced above. By leaning into the three strengths below, banks of all sizes can foster deeper relationships with more businesses in their communities.

Strength #1. An Agile Edge

Smaller financial institutions are typically more nimble and agile than their larger counterparts as they have fewer stakeholders to consider when making decisions and can act quickly in response to changing market conditions. From a change management perspective, this is an important advantage.

For example, at a smaller bank, the bank’s president may also be an underwriter, so they not only will have a say in the technology that’s selected for credit analysis and underwriting decisions, they will also be the one using it. This organizational structure helps employees and ultimately, entire teams embrace change more quickly and effectively. This also helps foster a culture of constant improvement and equips smaller financial institutions to implement new technology solutions and be more responsive to customer needs.

Strength #2. Niche Lending Expertise

“Most community banks step into something and they think, ‘Wow, this is a really good business. We should do more of these,’” said Scott McComb, chairman, president and CEO of Heartland Bank, a $1.8 billion-asset community bank, in a recent Independent Banker article.

Gaining market expertise and having your finger on the pulse of an industry helps bankers build a credit profile and an underwriting standard for that industry. “Once you get into it and understand the sector, you can work on bettering your portfolio all the time and become a resource for those businesses,” McComb said.

McComb’s Heartland Bank entered the niche craft brewery financing business 15 years ago and now has nearly 30 craft brewery and distillery customers who make beer, bourbon, vodka or other spirits.

Several other community banks have focused on similar initiatives, such as Southeast Tennessee-based Tower Community Bank. The roughly $400 million institution launched a lending program focused on bicycles a decade ago, as covered in a recent issue of BankBeat.

Strength #3. A Voice Within the Community

Banking is not always top-of-mind for a business owner, which is why bankers must get out into the communities they serve. When banks have representatives that consistently engage with the local community, they build trust with owners and other business leaders.

Lean into your bank’s expertise and share knowledge with potential clients through relevant associations, trade groups or events. This will present new opportunities to inform and educate small business owners, helping your bank’s relationship managers become trusted advisors. For example, small business owners often rely on pricy credit cards or personal loans, but a bank’s relationship manager can present information for other, potentially more cost-effective borrowing programs which they might qualify for.

While many fintech firms have made inroads into the small business sector, particularly in lending, most lack the full financial service offerings that a community bank can offer. Fintechs and larger financial services providers are competing for customers and their business, and will heavily market what can seem like compelling offers at first glance. Yet, these offers are no match for a community bank’s level of service and expertise. By focusing on your bank’s distinct strengths and making prospects aware of the value that your institution can provide, it’s much easier to attract new business and deepen relationships with existing clients.

Author Bio

Baker Hill empowers progressive financial institutions to increase revenue, reduce risk, and drive more profitable relationships.

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