Small businesses bank on a branch to bolster their operations

A version of this article first appeared in the August BAI Executive Report: Small businesses: Capturing more of this valuable segment. Find more insight within the issue on topics including SMB channel preferences, creating loan efficiencies, smart digital offerings and more.

You can’t do business without money and trustworthy advice on how to manage it.

And one of the best places for small and medium-sized businesses (SMBs) to get both is at a bank branch. Fortunately for SMB owners, reports of the branch’s death are greatly exaggerated, as Mark Twain might have put it.

Or as Jason Mencias, BAI’s research director, states in more current terms: “Branches are still important, particularly for business owners. Those owners still want to go into the branch for certain needs regardless of the newest mobile or online technology out there.”

In its 2024 Outlook: Small Business Banking Trends, BAI surveyed 600 small business owners to gain insight into their banking preferences and economic optimism. The survey was evenly distributed among businesses in four sales revenue ranges:

• Under $1 million
• $1 million–$5 million
• $5 million–$10 million
• $10 million–$20 million

The survey underscores a continuing and steady demand by small business owners for branch services.

When asked to project their omnichannel usage by 2027, 30% of small business owners cited the branch. Interestingly, the branch was their most preferred channel, topping both mobile and online channels, which tied at 21% each.

In the BAI survey, 29% of small business owners predicted that the branch would be their preferred channel three years into the future. In the year-earlier survey, the figure was 25%.

Demand for branch services by SMBs would appear to present a quandary for many bankers who’ve been dialing back their branches amid the ascent of mobile and online banking.

Mark Riddle, BAI’s research director, says there are several steps banks can take to better accommodate business customers at their branches. His suggestions also apply to accommodating consumer customers – their bread and butter.

“In most cases, there would be no difference in staffing because most branches have excess capacity, meaning they can absorb more branch transactions without necessarily adding staff,” Riddle says.

Branch hours, he suggests, could be extended to accommodate business customers whose hours often go beyond 5 p.m. “There are other options. Think about queued-up video tellers where there’s excess capacity somewhere in the system, and not necessarily at that branch. Small business experts could be queued from other locations.”

Business owners could schedule appointments over the phone or a PC so the branch staff can better prepare for the meeting. Banks can also designate and train SMB call center specialists. And they could cross-train personal bankers to get them up to speed on the needs of their business customers, Riddle says.

SMB owners visit a branch for a variety of reasons, including getting cash or depositing cash or checks. Some use a high-speed scanner at the branch for depositing checks, which often incurs transaction fees.

Business owners can scan checks in their own office, although the process takes some of their precious time that could be better spent on running the business.

Complex matters such as opening a loan usually require a face-to-face branch visit, but many routine transactions can be done more efficiently through other channels, Riddle says. “But there is still a comfort level to doing business in person. And the fraud risk is lower than it is in other channels.”

What business owners want more than anything from their bank is trustworthy advice, Mencias says.

“Number one was trust, which was true across the board, regardless of the size of business. They are all looking for a trusted advisor,” he says.

“The other factor that comes into play is that business owners want a personal relationship with that bank,” Mencias says. “They have to trust the bank because pretty much their entire financial relationship is with that one organization.”

According to the survey, the larger the business, the more likely it is to have a relationship manager assigned to it. Only slightly more than half (52%) of businesses with revenues under $1 million have a relationship manager.

But 90% of businesses in the $10 million to $20 million range have a relationship manager. The larger the business, the more interactions it has with the bank, according to the survey. The more the transactions, the more the fees.

The business owner’s relationship with their bank usually begins as a consumer. Eighty-six percent use the same bank for their personal and business needs. Nearly three-quarters (71%) of the business owners established their personal banking relationship first, per the survey.

Although SMB owners appreciate the personal touch, they’re not averse to opening a new deposit account online. On average, the process took only about 11 minutes – a convenience hard to resist for time-challenged business owners.

Proximity is critically important. More so than consumers, SMB owners are reliant on branches, primarily because they handle much higher cash volumes. Time is money, and a long drive to a branch is time ill spent.

“When I worked at a commercial bank, I noticed that all the commercial accounts were within close geographic proximity to the bank,” Riddle says. “That’s because businesses deal with cash and checks far more often than consumers. If you have checks to deposit every day, a long drive is going to be a problem. As a result, businesses need easy access to bank branches.”

According to the survey, 86% of the business owners in the $10 million to $20 million range preferred to have a branch close to their business, while 67% of the businesses with less than $1 million in annual revenue prefer a branch nearby.

“If you were to ask about channel usage today rather than three years out, I expect you’d see a higher percentage of digital and self-service compared to 2027 projections,” Mencias says. “We’re now seeing a little bit more of a shift toward human channels.”

Edmund Lawler is a contributing writer for BAI.