When I meet with clients around the country, many report that the large national banks in their markets are retracting from small business lending (businesses with less than $5 million in revenue).  Due to the financial difficulties that these big banks are facing, they have begun asking some small business customers to find alternative sources of financing.  Our clients indicated that they are approving and funding several “new” business loans that were shown the door by these large national banks. 

Only five years removed from the bank side, I still have friends in the trenches at national banks in the Chicago area.  Our conversations lately have focused on “work-outs” and collections from their small business portfolios.  One of my friends, who we’ll call Newman, tells me he’s finding troubled loans within his division’s portfolio on a daily basis.  He is spending more time on “work-outs” versus developing and expanding successful business relationships.  It’s currently a no growth situation for his bank.

Many of your competitors are distracted and turning away new and existing business customers.  Organizations with liquidity (and the desire) have a great opportunity to develop relationships with businesses, both existing customers and prospects, like no other time in our recent history.  By focusing on the small business basics, we can leverage these opportunities while strengthening market share during this economic downturn.  As a former commercial lender, here are five recommendations to grow business relationships.

1.  Get to know your customers all over again.

Yes, it may be an old cliché, but getting to know your customers is more important now than ever. Focus on the fundamentals to keep and expand your business relationships:

• understand their business model and how it might be changing in this economic environment
• know what other products / services they have with other financial institutions
• Look beyond your credit relationships. Just because they don’t have a loan with you doesn’t mean you don’t need to understand their business.
• Use this discovery process to uncover cross-sales opportunities

As we know, it is far more efficient to drive business from an existing customer than it is to develop a new client.  Evaluate your potential within your own base.  Thirty-four percent of businesses with revenues of $10 million or less do not borrow at all and an additional 46 percent of these businesses only borrow occasionally (source:  RFG’s Small Business National Research, Fall 2008).  With 80 percent of businesses looking for options other than credit, it’s important to understand their business needs.  If your first suggestion is always a business loan, then you may be missing other opportunities.    

2.  Don’t forget the business owner

As a commercial lender, I focused exclusively on the business side of the customer relationship with little attention to the consumer account opportunities (except for a few large net worth owners).  It wasn’t until I joined Raddon Financial Group and started working with our consumer research that I realized how significant the opportunity is with a typical business owner’s retail account relationships.      

Typical consumer product usage for the business owner includes interest bearing checking, high rate savings / money market accounts, credit cards, first and second mortgage products, and retirement accounts.   On average a business owner has over $34 thousand in deposit balances and $154 thousand in loan balances (source:  RFG’s Small Business National Research, Fall 2008).  Since the business owner trusts you with their business accounts, they should be receptive to hearing about your consumer accounts. Focus your sales efforts on the fact that you can be a one-stop for all their needs (business and personal banking). Your staff should be trained to uncover or recognize these opportunities.  I can attest from personal experience that the level of cooperation needed is not always easy to achieve.  Barriers in incentives, corporate structure and account ownership often get in the way.  But, in my opinion, you can strengthen the overall relationship if you own both the business accounts and the business owner’s personal accounts.

3.  Understand the account management preferences of your business customers

Most commercial bankers have become a trusted advisor to their business customers and continually advise their clients on various financial and operational improvements.  Nearly 63% of small businesses place a significant amount of importance in a banking relationship on the knowledge level of their primary contact (source:  RFG’s Small Business National Research, Fall 2008).  Training is critical.  Commercial bankers are typically managing a relatively small number of business relationships. In fact, a good percentage of your small business clients consider a teller or service rep or branch manager as their primary contact at your institution.  As you look to develop existing relationships within your base, utilize all of your points of contact to understand your customers’ needs and provide the customer experience they expect. 

How often do you have inter-department meetings to discuss your business customers?  From my past experience, it was rare; but inter-department cooperation is essential to uncovering new opportunities. 

Consider assigning a service rep to work with a commercial account manager to develop both the retail and business relationships.  We need to exploit all of our internal resources in driving business with existing customers. 

4.  Develop your backyard

How convenient are you to your business customers and how do you overcome any inconvenience?

• Understand what convenience means in your market. Common sense tells us that the definition of convenience in Chicago is not the same as convenience in the rural town in Iowa that I grew up in. In addition, RFG recommends using distance and the number of locations within five miles of a business location as the key factors in measuring convenience. We have found that having multiple touch points will overcome some distance issues, but not all.
• Segment your business customers and business prospects based on convenience. If you offer a high level of convenience, work aggressively to get the complete relationship and lead with business checking. Assign follow-up on higher value customers with a sales, branch or commercial representative. For businesses well outside your branch area, focus on your remote capture, lock box, cash management services, and of course, business lending. Also promote key electronic channels such as business bill pay, debit cards and ACH.

Intuitively I knew that my best opportunity for growing my book of business was to develop the markets surrounding our branches.  Empirically, we know that nearly 56 percent of business relationships are located within three miles of a branch location (source:  RFG’s CEO Strategies Group).  The business relationships closest to your branches are more likely to have checking, maintain higher deposit balances and have more services with you than businesses located outside your branch network.  As you continue to drive towards growing low-cost deposits and more earning assets, your backyard is the place to develop. 

5.  Evaluate the competition

The average number of financial institutions that a business customer uses is 2.78 and only 24 percent of businesses use only one institution.  Even businesses with revenues less than $100 thousand use about 1.64 financial institutions (source:  RFG’s Small Business National Research, Fall 2008).  As businesses get larger, their use of multiple financial institutions grows as well.  Some of your best customers – your strongest relationships – are using your competitors. You’re probably thinking “of course we are looking at the competition,” but a heightened focus is now required on the large banks in your market due to their downsizing of their business loan portfolio.  If you have banks merging in your market, open a personal checking account with them so you can be first to learn about any changes that are likely to occur.

There are many more considerations for growing business relationships; for example, think about mining your retail customer base for business accounts masquerading as retail accounts by looking at HELOC transaction patterns and checking accounts with unusually high transaction volume.

History tells us that a recessionary environment is the best time to grow market share.  Look for opportunities to grow your existing relationships and acquire new customers — you’ll be poised for substantial growth when the economy turns up.

Need new ideas, recommendations or solutions for growing small business relationships?

Contact RFG to learn more about our small business research and analysis solutions.  Call 800.827.3500 or email

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