Small business owners aren’t loyal to their bank.
Perhaps it’s no surprise. As inherent problem solvers, it’s safe to say that they’ll move their company’s money to the institution most willing to work with them. It makes sense: to survive, these companies need both capital and resources. When faced with unfavorable conditions, they are right to quickly make a move.
Over the last few years, this hasn’t posed a problem for banks. Small businesses were behind the eight ball and faced excessively high interest rates, but the tides are turning. I believe local banks that can’t earn the business of entrepreneurs within their community risk extinction.
What parts of the fintech playbook should they borrow to remain competitive, and where can they lean on their company culture?
Outdated processes pose risks.
Data from Lendio’s SMB State of Lending Survey shows that 61% of small business owners have no preference for where they get their loans. The process remains arduous today: 71% of small banks still take two to six business days or more to approve a small business loan, relics of outdated practices, and fintechs know it.
The truth is that online marketplaces and digital platforms are lapping them: offering competitive rates and frictionless online experiences.
Troublingly, the 2024 FDIC SBL Survey confirms that 50% of banks have no plans to use financial technology to support SMB lending. They should reconsider.
While they sort out their feelings on adopting new technology, they can double down on building rapport.
Time to be vulnerable: act like a partner, not just a purveyor.
When asked if their bank offers the right loan options, 45% of small business owners answered they didn’t know. This incredible data point supports the narrative that the relationship between local banks and small businesses is fractured. As small fish in a big pond, they should understand how much the two need each other to survive. Utilize the loan team’s institutional knowledge, lived experiences, and local connections to create an unparalleled partnership.
Show up on their doorsteps.
As much as everyone adores technology for productivity, humans crave connection. More prominent banks with better access to tools and resources can quickly swoop in with seductive interest rates, but how often can they show up at your storefront to see if they can help? Do not underestimate the power of in-person interactions.
Ask what they want, and give them what they need.
Small business owners rely on technology to power their operations, and they expect the same nimbleness from their banking provider. However, small banks don’t have to put the relationship on autopilot and completely forgo the unique qualities of small-town banking; they just need to be selective about which technology they use. Shockingly, only 25% of all banks offer applications that can be submitted online or via mobile application. By offering choice and flexibility, small banks can offer entrepreneurs the best of both worlds.
Extend the olive branch.
Smaller banks and small businesses can and should collaborate to improve each other’s survival. This Valentine’s Day, small banks can mend relationships with SMBs by differentiating the customer experience and implementing technology to better analyze the factors determining a business’s creditworthiness, giving them the tender loving care they need to succeed.
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