Buddy system: with innovative services, banks are creating new partnerships with small businesses

Entrepreneur, March, 1997 by Stephanie Barlow

Good relationships have always been important in banking, but these days, the relationship between banks and small business is rapidly expanding as more banks offer cash management programs, streamlined loans and convenience services to their small-business clientele. At Whitney National Bank, for example, Williams and other small-business customers can do more than obtain loans and lines of credit; they can also take advantage of a host of services under the bank's new Business Edge Banking program, which was launched in May 1996.

According to Whitney's vice president Rebecca Dey, Business Edge Banking was the direct result of input from small-business customers. Whitney defines a small business as one with fewer than 20 employees and no more than $5 million in annual sales, says Dey.

"We found there was a real need for a business checking account that is as easy [to use] as a personal checking account," Dey says. As part of Business Edge Banking, Whitney created a no-fee checking account for companies that write fewer than 150 checks a month and maintain either a $2,500 minimum balance or a $5,000 average collected balance each month. A consolidated monthly statement puts all account and loan activity in one report, simplifying cash management; customers can even receive a daily fax of the previous day's banking activity.

Whitney's Business Owner's ATM card provides 24-hour account access. "I know what small businesses' hours are," Dey says. "They're doing banking at 9 p.m. and on weekends."

Whitney National Bank is just one of a growing number of banks targeting small companies with tailored financial management programs. Although there aren't any statistics on exactly how many banks offer such programs, industry observers say the small-business market is garnering attention as other bank revenue streams subside.

Ann Grochala, director of bank operations at the Independent Bankers Association of America (IBAA), a trade group to which nearly 5,500 community banks belong, says that banks are seeing increased competition from nonbank financial institutions. Sources such as Merrill Lynch, American Express, Money Store and even insurance companies are helping small businesses finance equipment and inventory. She adds that one way for banks to compete is to offer other products, such as cash management and electronic banking.

* SMALL BUT GROWING

Terri Dial, vice chairman and head of the Business Banking Group at Wells Fargo Bank, says her bank sees small business as a crucial growth market. Growth engines that spurred bank growth in the 1980s are less reliable now - big corporations often skip bank financing in favor of the capital markets, and large-scale real estate development has slowed considerably. "As a market segment, [small business] is growing," Dial says.

To capitalize on this growth, Wells Fargo created a line of products and services for small businesses in the late 1980s. Among the first products introduced were a flat-fee small-business checking account and ATM banking for small companies.

Once available only to individuals, ATM cards with various access levels are now issued by Wells Fargo to small-business owners and their employees. In addition, Wells Fargo's National Business Banking Center provides small-business clients with account information and assistance via telephone 24 hours a day.

The frequent interaction with and feedback from small-business customers also led Wells Fargo to make some improvements in its small-business lending program. "When we talked to small-business owners, they said they weren't being served very well," Dial says. "So we made some dramatic changes in lending. We found out one reason small businesses complained about access to credit was that they just needed small loans."

Traditionally, paperwork and processing time have made lending amounts in the $25,000 range too costly for banks. By streamlining the application process and reducing paperwork - not to mention making a profit from the additional fees for new banking products for small businesses Wells Fargo has been able to make more small loans. Dial says the majority of the bank's small-business loans are now for less than $50,000. The upshot? In 1989, Wells Fargo's small-business loan portfolio was about $300 million, according to Dial. Today, it tops $5 billion.

* WORKING HARDER

Part of the trend toward banks offering more programs may have to do with the economic cycle. "Several years ago, there was a credit crunch," says Grochala. "For the last couple of years, however, small businesses have been thriving." As a result, they present a more attractive market for banks to target.

Many of the banking programs targeting small businesses are still very new, so it's difficult to say whether they are here to stay or how far they'll really go in improving the overall financial climate for small businesses. According to the 1996 Survey of Small and Mid-Sized Businesses conducted by Arthur Andersen's Enterprise Group and trade group National Small Business United (NSBU), 77 percent of the approximately 480 businesses that reported applying for a bank loan in 1996 succeeded in obtaining that loan. That's down from the 85 percent of respondents who succeeded in getting a bank loan in 1995.