SMB lending: ‘Treat small businesses like the digital citizens they are’

The Banking Strategies editorial team pulled highlights from the BAI small business lending webinar held earlier in 2024. You can hear the full exchange, including the lending outlook for the year and digital trends for the SMB space, from the webinar recording. 

Small businesses must balance taking risks that will get new ideas and products in front of their customers at the same time they deliver reliable offerings that keep the lights on. Plus, they have cash flow, rent, insurance, payroll, tax prep and a long list of necessary back-office demands that have little to do with why they went into business in the first place.

It all takes agility and access to capital. And foremost, it requires a banking partner that’s just as nimble. That’s especially true in an economic environment shaped by uncertain interest-rate timing, and lingering questions on inflation and consumer spending health as we get deeper into 2024.

Chris Hendrickson, senior vice president, small business strategy and transformation leader, at Comerica, is leading an SMB strategy at the bank that has traditional lending at its core, but pivots for clients as needed.

Comerica, which had already operated as an SMB lender, pledged $5 billion in small-business loans beginning in 2021. The promise was shaped initially by the responses needed during the pandemic and the emergency economic response that followed. Since then, however, key learnings on speed, flexibility, digital convenience and more, have shaped ongoing relationships and the SMB loan portfolio continues to grow.

Chris was joined earlier this year on a BAI Webinar with Comerica partner Kevin Trilli, chief product officer, at Amount. It’s with Trilli and Amount’s mostly SaaS solutions that Comerica has grown the capabilities of its small-business lending portfolio, and with it, grown the portfolio overall.

It’s an expansion that maintains the risk and fraud guardrails that the bank demands as well, especially given uncertain market forces.

The SMB outlook continues to point up, says Chris.

“We see as many as three interest-rate drops coming in 2024, which certainly I think is going to help fuel some of the desire for small businesses to obtain capital,” he said to kick off the webinar.

Kevin agreed. “We’re seeing more people that had maybe paused SMB lending starting to begin the exploration and a couple have acted on it and are starting to deploy new programs this year,” he added. “And that’s both at the larger end of the banking, like where Chris represents, but also in the mid-market, where you’re seeing credit unions and others starting to participate and think about SMB a little bit more holistically for the first time.”

Here are some additional key takeaways from the valuable discussion. Answers have been edited for length and clarity. You can also hear the full webinar.

Chris: Coming out of the pandemic, and as Kevin said, with small businesses generating about half of U.S. GDP, we really felt the impact [of small business lending] in the communities. So we listened to our customers… They needed access to capital, and they wanted dedicated service, they wanted somebody who was going to offer them more than just a tool, more just than just a place to park money or to get money. We hired over 100 small business bankers, so that small business customers and our communities can have an expert to actually talk to, and then we equip them with the tools to be successful. We partnered with Amount and we’re providing digital tools for quick access to capital, which again, was something that they clearly desired.

Kevin: [Small businesses] want banks to provide them with more options, more lending, more services beyond just the traditional services of banking, but also better experiences. They want to be treated like digital citizens, and not commercial entities. And I think this is really the opportunity that’s presented here. And, you know, [SMB has] generally been underserved. It’s a great opportunity for many banks that can move into the space.

Chris: We really gave small businesses back I think what they just desired most, which was time to run their business. They don’t want to spend a lot of time on banking. [That involves speeding up] credit decisioning, migrating to DocuSign. And it involves making everything easy to navigate for your bankers and for your internal staff as well. We have high touch training.

Kevin: SMB is one of those gray areas. It’s not really a commercial entity, because if you think of who’s running these businesses, they’re also consumers. There’s a great opportunity to think of them not only for the great deposits they bring in, which brings another benefit, but also the upsell to some different types of loans in the future for the personal side of their lives. Everything amounts to trying to do what we call a performance advantage.

Chris: On credit risk… Not just with this [digital-first] solution…small business credit risk a fact of doing business in the small business space. But it’s not egregious. It’s not nearly as egregious as some of the other opportunities, I think, that are out there, if you want to go into it from a credit perspective. And we’ve seen actually very healthy results to date. And the numbers are fantastic, better than we could have ever projected. But as it ages, we continue to watch it. But I think what really is key here is we have over 170 different rules that go into this model. And at any point in time, we can tweak those rules, so it allows us to be incredibly nimble and respond to market changes at the drop of a hat.

Chris Hendrickson is Senior Vice President, Small Business Strategy and Transformation Leader, at Comerica.

Kevin Trilli is Chief Product Officer at Amount.

Edited by Rachel Koning Beals, Senior Editor, at BAI.