Small Business Lending: How Banks Can Differentiate Themselves From Nonbank Alternatives

Banks are typically the first place small businesses consider when seeking a loan, however, the landscape for business lending has changed substantially in recent years, with alternative banking options gaining significant credibility. There are a plethora of new, hip funding sources on the rise – and as their popularity grows, banks are feeling a disconnect. Over a third (37%) of respondents from ath Power’s most recent survey on Small Business Banking would consider obtaining business loans from alternative lenders and 42% would consider government-backed loans.

Nonbank alternatives come in a variety of forms, from Peer-to-Peer lenders like Prosper and Lending Tree and B2B lenders like Fundera or OnDeck to Rewards-Based Crowdfunding like KickStarter and Equity-Based Crowdfunding such as OfferBoard. Most of these sources are online-based and sought for their convenience and the ease/speed of obtaining the funds. However, the downside of nonbank alternatives is the lack of a personal touch and trusted advisor relationship.

It has never been more critical for traditional banks to find ways to differentiate themselves from alternatives that may offer greater convenience and accessibility. While keeping pace with online and mobile banking services is essential to providing convenient and flexible banking practices for the modern small business, there is no doubt that the relationship between business owner and banker remains the key component for enhancing the perceived value of the business banking experience.

The Customer Experience is Paramount

Plain and simple, Small Business Owners (SBOs) are looking to grow their business, while streamlining their finances and running their operations as efficiently as possible. Certainly, a lending partner with superior technology is important, but having a Small Business Banking Specialist who understands their needs and is committed to their success can make all the difference to an SBO.

This is what traditional banks can use to their advantage, as the customer experience is paramount.

By focusing on adding value through the provision of a superior customer experience, banking institutions will be better positioned to attract new small business banking clients – turning prospects into satisfied clients – while improving retention with their existing customer base.

How to Improve the Small Business Banking Customer Experience

Be knowledgeable about loan products and services. This should go without saying, but being educated on not only your bank’s own offerings, but the nonbank alternative options available today, will help build your case and knowledgeably explain if and why your offerings are better suited for the SBO.

Provide a low-stress environment. Let’s face it, SBOs are highly stressed and the last place they want to feel it is from their bank. Make sure they know you are there to support them and see them succeed, not to shut them down.

Be the trusted advisor the SBO can turn to for financial advice at a moment’s notice. Despite the growing importance of the business banker as a source of information and counsel, very few small business owners (only 8% of customers in ath Power’s recent survey) feel that their bank provides to them a business specialist who acts as a Trusted Advisor. When a Trusted Advisor relationship is established, small business owners are more than twice as likely to recommend that bank and rarely show any inclination toward switching banks.

Respond quickly and courteously to questions/requests. One of the reasons SBOs often turn to nonbank funding sources is the speed of the process. If your bank is dedicated to targeting Small Businesses, make sure there are processes in place to handle incoming inquiries right away. Additionally, provide your Small Business prospects with regular updates.

Offer tools and solutions that nonbank alternatives do not. Typically, nonbank funding sources do not offer anything besides the actual cash infusion to help the SBO succeed. Our research suggests there may be opportunities for banks to expand their relationship with small businesses by providing services that help owners manage and develop their business. Examples may include tools for supporting day-to-day tasks, such as generating invoices or creating legal documents or managing the finances of the business. Other types of tools may be provided to help business owners tap into technologies for uncovering efficiencies (e.g. automated credit monitoring of customers) or expanding markets served (e.g. tools for developing a Web presence).

Contact ath Power Consulting

For more information on how we can help your organization improve customer experience and increase retention, please contact ath Power via email at info@athpower.com or by clicking the request more information button below.

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