A meeting yesterday between Vice President Biden and 13 U.S. banks has resulted in a number of these banks announcing or reiterating small business loan commitments. The banks include:
- Chase: announced that it was on track to increase small business lending this year by 20% over 2010 levels, to $12 billion
- Citi: committed to lend $24 billion to small business over the next three years ($7 billion in 2011, rising to $9 billion in 2013)
- KeyBank: committed to lend $5 billion to small businesses over the next three years
- M&T Bank: pledged to increase small business lending by $50 million over 2010 levels for each of the next three years
For banks, making such a commitment is important, as it acts as a rallying point around which resources can be concentrated. Having a specific commitment also implies that the bank’s senior management has approved the objective, another key criterion for success.
However, announcing a specific lending commitment is only a first step. For banks to achieve a small business lending objective, they need to design and implement an integrated plan that encompasses a wide range of activities, including:
- Customer and competitive intelligence
- Segmentation and targeting
- Data mining
- Product, service and offer development
- Marketing communications
- Sales channel optimitization (including structuring, incentives, training, and ongoing sales support)
In addition, these activities needs to be organized around customer needs and bank opportunities at various stages of the customer lifecycle:
- Ongoing relationship development
For more insights in developing effective small business banking operations, see our white paper on The Transformation of Small Business Banking in the Thought Leadership section of the EMI Strategic marketing website.
Over the past year, the main issue in the business banking sector has been the decline in loans to small businesses. Many business owners claim that the available of working capital for their businesses has dried up, while banks claim that there has been a significant fallout small business loan demand. At the same time, we are seeing mixed news from surveys on small business optimism.
However, we are now seeing some signs that banks are beginning to turn their attention to the small business market. This refocusing on the small business market is in part driven by a perception that small business credit woes have bottomed out: Bank of America reported in its 2Q10 financials that the charge-off rate for its small business commercial-domestic loan portfolio had declined for the third consecutive quarter, from a high of 17.45% in 3Q09 to 12.94% in 2Q10.
Although data on small business lending banks can be spotty, there are signs that banks are starting to increase lending to this segment. In August, the Federal Reserve’s survey of bank lending practices found an easing of lending standards for small businesses. Chase reported in its 2Q10 financials that business banking origination of $1.2 billion in 2Q10 was twice the level of 2Q09.
Some recent business banking initiatives by banks:
- Provision of new online services. In August, First Tennessee Bank introduced the Business Resource Center, featuring a series of tips and resources for businesses, covering banking and non-financial topics. In the same month, BB&Tlaunched a new series of small business webinars. In September, U.S. Bank introduced Scorecard, an online reporting too that enables small businesses to track their own spending
- Advertising: American Express OPEN launched its “Start Booming” advertising campaign in July.
- Hiring of dedicated small business personnel: In June , Sovereign Bank accounted that it was adding more than 200 Small Business Specialists. In August, Huntington Bank reported that it has exceeded the commitment made earlier in 2010 to hire an additional 150 small business bankers.
- New products and offers: In June, Chase launched an innovative new small business loan program, Chase Loan for Hire, featuring a reduction in the interest rate for every new hire made by the small business customer. In September, Comerica launched the ‘Office Perks’ campaign, featuring a series of offers, including $200 for opening a business checking account. The same month, Citibank offered a $250 prepaid card for opening a qualified business checking account and signing up for at least one cash management service
The small business segment has traditionally been very profitable for banks. So, as small businesses emerge from the recession, bank will want to be sure that they have the elements in place to once again build their small business franchises.