In the small business segment, banks were more willing to lend to the healthiest small businesses over the past year, according to Greenwich Associates. Although the number of creditworthy small businesses has been climbing in step with the grinding economic recovery, many firms still fail to meet heightened standards as providers remain cautious about potentially risky loans.
As a result, banks are battling for business from small businesses with solid fundamentals. These companies are benefitting in the form of improvements in coverage and service quality.
“Banks are offering small businesses advice on how to optimize cash flows and increase efficiencies in other areas as a means of building relationships that will position them to win new loan business when it emerges,” says Greenwich Associates consultant Duncan Banfield.
These improvements in service quality may prove temporary. In some cases, only the small businesses deemed as having the most profit potential for the banks are assigned a banker. New compliance costs, capital reserve requirements and other developments have changed the economics of small-business banking. In order to preserve profit margins, banks have begun rationalizing their resource commitments in a more deliberate manner. For many small businesses, these changes mean they may no longer be assigned a relationship manager. Instead of having a dedicated banker on whom they can call, they will be served via branch locations, call centers and online.
“We’re seeing profitability pressure on banks driving new channel technology,” says Chris McDonnell. “For small businesses, the positive of that convergence is that it will allow them to meet their banking needs through new electronic channels such as mobile banking and enhanced omni-channel capabilities. However, there will be an adjustment period for those business owners that have relied heavily on their bankers.”