Understanding and attracting SMBs

The relationships that banks and credit unions forge with small and medium-sized business (SMB) operators have only grown more valuable. There are many reasons why.

As the BAI 2024 Outlook Small Business Banking Trends report showed us earlier this year, this group is a rich resource as a sentiment gauge on economic conditions. They’re a GDP powerhouse, and survey results show they are markedly more upbeat than consumers on the economy and about their own operational standing in recent months and when asked to look ahead.

In the August BAI Executive Report, we leverage that trend report and the data experts behind it, BAI’s Jason Mencias and Mark Riddle, in our lead article about SMB branch use: “Small businesses bank on a branch to bolster their operations.”

As Mencias remarks in the piece, “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 that’s out there.”

We pay particular attention to the role of the branch or omnichannel relationship manager with SMBs, which I found especially interesting in this era of a digital push.

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

SMBs at the larger end of that category are the key demographic when we are talking about relationship managers. Some 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 transactions, the more potential fees or other revenue possibilities.

You’ll also find an infographic featuring more of BAI’s SMB intel on deposits, trust and reputation, and the close linkage between consumer accounts and SMB accounts, especially in a gig economy and as more workers look for flexible alternatives to corporate jobs. There’s much more to sift through in the numbers, both in this BAI Executive Report and in the full research offering.

In our profile, Mechanics Bank has tapped M&A for growth and with it, inherited the snags that come with syncing up multiple systems. That was especially true when it came to a key target area: expanding its SMB lending business. We detail how Mechanics’ migration to a single digital loan processing platform has helped quadruple its SMB loan portfolio in three years.

“Rather than spending hours in the office on time-consuming tasks, such as covenant tracking and tickler reporting for mistakes or missing items, the bank’s lenders can instead focus their efforts on supporting clients, identifying new sales opportunities and closing deals,” says Bryan Peckinpaugh of Baker Hill, the bank’s technology partner.

And it’s not just customers who are pleased. Staff bankers are now free to engage in SMB advisory and building reputations as local economic growth and strategic business drivers. That creates great recruitment incentives.

Improving operations has been a key piece of the bank’s outlook for SMB growth. As Tony Kallingal, chief banking officer, stresses: “Unlike individual consumers, SMBs offer a stable deposit base, characterized by higher average balances and consistent banking activity.”

You’ll also find valuable articles on SMB competition with neobanks and on winning SMBs with from opening processes to fraud-fighting considerations.

• Moody’s checks in with “Treat your small-business borrowers to the same efficiencies as consumers”
• Mantl offers “6 targets for your path toward smarter SMB account opening”
• And NICE Actimize cautions, “In SMB banking, it’s time for a fortified fight against fraud and anti-money laundering”

Enjoy the issue.

Rachel Koning Beals is Senior Editor with BAI.