Banking Leader

Locking in the Small Business Relationship

Maria Schuld | division executive, North American Banking Solutions, FIS

September 10, 2021

Financial institutions face intense competitive pressure for their large commercial customers along with challenges to acquire many consumer relationships. One of the last strongholds for regional and community banks is the small business customer. This sentiment is reinforced by recent research from Business Intelligence indicating that small- and medium-sized businesses (SMBs) are vital creators of wealth, income, and jobs in the global economy. These firms make up 99.9 percent of all private sector businesses in both the US and the UK, and they employ 60 percent and 48 percent of all workers in those countries, respectively. The income and assets of these businesses make them an irreplaceable customer base for financial institutions.

Lending is the lifeblood of banks and loans to small businesses contribute significantly to financial institutions bottom lines. According to the FDIC Small Business Lending Survey, community banks between $1 billion and $10 billion in assets had over a fifth of their C&I lending with loans above $1 million made to businesses with under $1 million in revenue.

60% of all workers in the U.S. are employed by SMBs

20% of all Commercial and Industrial lending of loans by community banks was to businesses with under $1 million in revenue

Bankers need to think differently

While the lending opportunity presented by small businesses is tremendous, bankers can’t pretend the opportunity is theirs for the taking. First and foremost, banking remains all about relationships, with lending just one side of the equation. Small business owners have very real financial discomfort beyond borrowing – these concerns extend into areas such as cash flow, operating more efficiently and understanding their financial positions.

Small business solutions that accelerate accounts receivable processing, manage the outbound payments, and save owners time stand a good chance of winning in this competitive market.

Offer products and services that change the game

The importance of integrated accounting software for small businesses should not be underestimated. According to recent research from MetLife and the U.S. Chamber of Commerce, small business owners likely work far longer hours than the average American and sleep far less than the recommended eight hours per night. During those long working hours, they spend 5.6 hours working with clients or customers, another 3.7 managing staff, and about four hours on administrative tasks. Better use of tech can help owners manage time, increase efficiencies throughout their business, and feel better about their overall business health.

As bankers think through how to provide the product offerings for their small business customers, they should try and answer three basic questions:

  • What are the standard components of a financial solution our bank could offer to small businesses?
  • How have other banks approached this opportunity?
  • What resources or partner can manage the packaging, integration, and support of a small business financial solution?

A small business should look to their banking partner to help solve cash flow challenges and improve their administrative burden. Small business owners need financial solutions that can provide:

  • Snapshots of coming-due and past-due items
  • A total cash checkpoint of internal and external accounts
  • Robust accounting for a “quick temperature” on the health of their business

The time to act is now

Financial institutions should partner with an innovative fintech provider that can help them offer an integrated small business accounting, invoicing and payment solution. Such an offering should let business customers:

  • Send invoices
  • Get paid online
  • Pay bills
  • Integrate payroll
  • Automate accounting

Do these solutions resonate with small business owners? Proof points from one provider of integrated financial small business solutions notes that bank partners report small businesses with their product get paid twice as fast, in 16 days vs. 33 days. This can make or break many smaller operations. And it can grow the bank’s relationships for deposit growth and lending opportunities.

The small business market provides an attractive opportunity for regional and community banks. Offering these customers robust financial solutions is key to locking in relationships and deriving the long-term benefits of such relationships. Autobooks, in partnership with FIS, provides this type of complete offering to your financial institution, helping gain deposits and grow lending relationships.