No one can dispute the importance of the small business segment to the overall economy and to the banking sector in particular. Various studies have shown that the profitability of the small business owner considerably exceeds that of the “average” retail customer by two to three times and it is not difficult to see why: small business customers tend to be more affluent, they tend to have higher credit lines and generally use more banking services than an average retail customer.
Business owners are also inclined to keep larger balances on deposit accounts – often in non-interest bearing accounts. They are less rate sensitive than retail customers and are reluctant to move their accounts. Even better from a bank’s standpoint, our research shows that two out of three small business owners are likely to bring their personal accounts with them when they select a bank for their business needs. And let’s not forget that this segment presents more lucrative cross-sell opportunities than any other.
So how and when can you turn an indifferent small business prospect into a new customer?
As the Small Business Owner (SBO) evaluates a bank in an effort to decide whether or not to bring their business to that institution, many factors come into play that can either incent the individual to choose that bank or drive them away. In this year’s ath Power Small Business Banking Study, nearly 900 SBOs performed in-person audits at 39 banks across the U.S. The individuals evaluated the sales and service protocols at these institutions as it related to their Small Business Banking offerings. Overall, results showed that the banker’s behavior clearly drives the inclination to become a customer, but more importantly, the initial interaction with the banker can either make or break the prospect’s decision to bring their business to that institution.
Bankers must proactively ask questions about their prospect’s business and take the time to listen to the responses and consider them before suggesting their bank’s services. Seventy-nine percent of bankers attempted to determine the needs of the small business owner before discussing their bank’s product and service offerings – a significant deterioration from last year’s 87%. Most disturbing is that one in three SBOs reported that the banker they spoke with would not listen to them describe their needs before launching into a sales pitch about the bank’s various product offerings – even though “listening” is a key driver in the decision to bank with an organization.
When bankers took the time to determine the SBO’s banking needs before mentioning the bank’s offerings, 83% of business owners indicated that they would become a customer of that bank. Thus, it is vital that any staff member who may interact with potential small business clients develop the selling skills necessary to first learn about the potential client’s business dynamics, and then be able to connect their needs to the appropriate products.
We’ve Got Loans
It is important to remember that small businesses have been hit especially hard by new bank regulations that restricted credit or, in some cases, severed it altogether. Today, many small business owners believe that credit standards have become so strict that they have no chance to obtain a loan. Others are distrustful of banks after having their loans called or denied during the economic downturn. Some are simply unaware that banks are willing and/or able to lend again. In any case, the general sentiment among the SBOs who performed audits for our study is that banks are typically not interested in discussing these products.
The bankers in our study spoke with scarcely more than 56% of the SBOs about credit products, even though many SBOs complain that they find it difficult to obtain credit from their current bank. The situation is virtually unchanged since last year, when 58% of SBOs reported hearing about credit options available to them. Among SBOs who were presented with lending options, 4 out of 5 were told about revolving credit products (cards and lines of credit), but relatively few were told about other forms of credit. Small Business Administration (SBA) loans were discussed with just 1 in 5 despite the fact that the past year saw a record number of SBA loans originated (62,000 loans, $30 billion in loan guarantees, according to the agency).
One of the most interesting findings of our study was that when a banker spoke about credit and/or lending products during the initial interaction, even simply the claim to want to discuss these products with the SBO, it dramatically improved their standing with that prospect. In fact, 91% of owners say they would seek financial advice from the banker in future and would become a customer of the bank if credit options were discussed even though a high percentage of SBOs will never borrow money. This underscores the vital nature of credit facilities to such customers whether they tap those facilities or not.
By not discussing credit options at all, bankers significantly diminish their potential for being considered in an advisory status and risk losing the prospect entirely. Among the sizeable group of SBO participants in our study who were not told about the bank’s credit offerings, roughly half said they would return to the banker for future financial needs and advice (57%) or become a customer (55%).
Why Bank with Us?
SBOs have many choices as to where to bring their business, and today, relatively few small business customers are highly satisfied with their current banking relationship – making them more likely to switch banks if there is discontent. In such a highly competitive sector, it is paramount that banking institutions have a relevant and compelling value proposition that uniquely differentiates them from the competition.
It is also vital that any frontline employees who may interact with a small business prospect intrinsically understand the value proposition and be able to proactively answer the question “What makes your bank better than the rest?” This holds especially true in the initial interaction with an SBO. Results from our study showed that when bankers were confident and provided a specific and convincing response to this question, there was a significantly higher likelihood that the SBO would become a customer of that bank.
Conducting a thorough needs assessment, discussing business credit/lending products and providing a specific and convincing explanation of the bank’s value proposition proved to be three key drivers of a small business prospect’s inclination to become a customer when they took place during the initial interaction with the banker. These behaviors show eagerness for the SBO’s business and demonstrate a desire to help them become successful and grow – factors that weigh heavily when an SBO is choosing a bank.
Mr. Aloi is president and CEO of ath Power Consulting, which is based in Boston and Washington, D.C. and is a full service marketing research firm providing demand-side research to banking and financial institutions. He can be reached at firstname.lastname@example.org.
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