Banks reaching out to small businesses in advance of National Small Business Week

May 4, 2011

Over the past couple of weeks, there has been evidence of a continuation of the sometimes tentative recovery in the small business market.

The Federal Reserve’s Senior Loan Officer Opinion Survey of Bank Lending Practices found a continued easing of lending standards for small firms, as well as a growth in demand for such loans (however, this growth in demand trails that for large and middle market firms).
A Greenwich survey of small businesses found evidence of significant growth in demand for small business loans (up to now, banks have been claiming that they are willing to lend, but that small business demand has been weak)
According to the latest ADP Small Business Report, private small business employment rose by 84,000 in April 2011. Small business employment fell every month from April 2008 to February 2010, with a total decline during this period of 2.7 million. Since February 2010, private small business employment has grown every month, with a total increase of 788,000.
Some surveys (such as the latest Capital One Small Business Barometer survey) show an improvement in small business optimism. However, it should be acknowledged that this can be tentative, and other surveys (such as the Wells Fargo/Gallup Small Business Index survey and the NFIB’s Index of Small Business Optimism) registered recent declines.

Banks are now starting to introduce initiatives in anticipation on a sustained small business recovery. At the end of April, Chase committed to lending $12 billion in small businesses in 2011. And some leading banks have introduced small business initiatives around the upcoming National Small Business Week:

Citibank launched a nationwide small business campaign, starting with a national outreach day. The bank expects to reach 50,000 small businesses through a range of activities
TD Bank has launched its first small business outreach campaign, with a goal of reaching 25,000 companies during May
Wells Fargo launched its annual Small Business Appreciation Celebration and introduced the online Business Insight Resource Center

Other national and regional banks, as well as community banks, will be looking at these small business campaigns with interest, and will be trying to determine if they constitute a one-off to coincide with National Small Business Week, or the tipping point for an industry-wide re-commitment to this segment. If it is the latter, these other banks will need to quickly develop and introduce small business marketing and sales support programs, so that they are not left behind, as small business recovery takes hold.

Small business lending trends from banks’ 1Q11 financials

April 19, 2011

Most banks do not break out small business lending data in any greater detail in their quarterly financials, but Bank of America and Chase both provided some interesting (and contrasting) small business lending-related metrics when they published their first quarter 2011 results last week:

Chase grew business banking originations 57% y/y, to $1.4 billion. In addition, end-of-period business banking loans rose for the second consecutive quarter, to $17.0 billion. In presenting the quarterly financials, JPMorgan Chase CEO Jamie Dimon claims that the bank is starting to see real small business loan demand
Bank of America’s small business loan charge-off rate fell for the sixth consecutive quarter, declining 45 bps from 4Q10 to 8.68% (this is the lowest rate since 1Q08). However, its small business loan portfolio continued to decline, falling 2.8% in the quarter to $14.3 billion at the end of 1Q11 (although the rate of decline is falling)

So while Bank of America remains focused on getting credit quality under control, Chase has forged ahead and is growing its small business franchise. As other national and regional banks publish their quarterly financials over the next week, it will be interesting if any other bank has started to grow its small business loan portfolio.

Huntington on track to meet small business lending commitment

March 2, 2011

At the start of 2010, Huntington Bank committed to lend $4 billion over three years to small businesses in its footprint, joining leading banks like Chase, Bank of America and Wells Fargo in making specific small business lending commitments.

Huntington reported yesterday in a press release that it lent $1.1 billion to small businesses in 2010, with an acceleration in this lending in the second half of the year, which the bank attributed to an improving economy as well as the completion of its hiring of 150 additional business bankers. Huntington claims to be on track to meet its three-year goal.

This press release follows news in recent weeks that Chase and Bank of America both met their 2010 small business lending commitments. Wells Fargo fell short of its target, although it still grew small business lending by 15% in 2010, and reported strong growth in loan demand from small businesses in the second half of the year.

It should be noted that small business loan balances for many large banks continue to decline year-over-year, as charge-offs and paydowns outstrip origination. However, we may be on the cusp of an inflection point , with declining charge-offs and increasing originations leading to overall growth in small business loan portfolios in the coming quarters.

The sales and marketing challenges for banks aiming to capture a share of the small business market include:

Positioning themselves as a financial partner to small businesses, providing both financial products and advice
Revisiting the small business product portfolio to ensure that it addresses the changing financial needs of small businesses
Developing offers and bundles to reflect banks’ renewed focus on relationship optimization
Ensuring that all service channels (branch, call center, Internet, mobile, social media, etc.) deliver a consistent customer experience
Recruiting, training and developing support tools for dedicated business bankers
Implementing programs and process for other branch personnel to sell to small businesses and/or refer them to business bankers