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4 Ways Banks Alienate Their Small Business Customers

Heavy regulation restricting lending coupled with a tough economy has strained the relationship between small businesses and the banking industry. Here are a few common issues that financial institutions do that irritate small businesses and drive them away.

By Tracy Kellaher, VP of Business Development & Lender Relations for Biz2Credit

1. Not looking at the whole picture

A frequent source of frustration for small business owners looking for credit is when banks use rigid algorithms or standard scoring models based on a handful of financial figures and ratios to determine a loan’s viability. While credit scores and debt-to-equity ratios are important, they rarely tell the whole story. After all, each small business is different and has its own set of unique circumstances.

A thorough analysis of a company’s loan worthiness includes a complete understanding of its business model and strategic plan — things that aren’t reflected in the cold, hard numbers, particularly for new businesses that are just getting started. Taking the time to fully examine the business not only makes the business owner feel valued, but may reveal that the business is indeed worth the risk. When a lender takes a deeper dive instead of just a cursory glance, they can gain a customer for life.

2. Slow response time

Giving every loan application a comprehensive examination is certainly necessary, but when things drag on a business borrower can get pretty cranky. A lagging response time and unnecessary delays are a major aggravation for small business owners. It’s important to process loan applications smoothly and explaining any delays. Equally important, you need to promptly return phone calls and respond to any emails. Giving the business owner frequent updates on the progress of their application tells them that their business is important to you. It encourages trust and loyalty, even if a loan application ultimately is rejected.

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3. Failing to build personal relationships

Small business owners don’t want to be treated as just a name and some numbers on a spreadsheet. They want to work with a banker who knows them as well as their business. Simple things like remembering what year a business customer’s children are in school can go a long way towards fostering a longterm healthy relationship. More importantly, being involved in the business — visiting the premises, understanding any challenges they are facing or progress they are making, knowing their clientele and engaging in active, interested discussion of their day-to-day operations — lets the owner know their bank is a partner in their success. Being highly involved also makes it easier to spot potential trouble or growth spots, and since the owner knows you know their business and are committed to its’ success, they are more likely to respond well to any input.

4. Inflexibility

A rigid and unbending banker will drive small business owners away. They must be flexible themselves — constantly adapting to their own customers’ needs. That’s just how it goes for small businesses. They have to be nimble, and they expect their banker to be able to pivot as well. Bankers need to work with business owners so that both parties can get what they need. If a loan application is on the way to the rejection pile, make the effort to see might alter that decision. Give the small business owner options, such as negotiating a smaller loan, finding other sources of collateral, or postponing a decision until certain risky aspects of the business have been satisfactorily addressed. Knowing that their bank is as dedicated to finding a solution as they are will keep your small business customers bringing their banking to you.

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

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  1. These issues are the reasons why Horizon Business Funding is seeing a rapid increase in business owners looking for our loan alternatives. The risk averse lending climate has left a lot of business owners who could otherwise grow very successfully feeling abandoned by the traditional lending industry. Since we are not a bank, we are able to take a relationship based approach with funding our clients and there is virtually no wait time for approval. The majority of business owners who take an advance with us choose to continue a relationship once they experience a viable alternative to banks and their purely mathematical underwriting. See for yourself

  2. Indeed, as Andrew says – these are major issues with banks and has certainly influenced the increase in people choosing alternative lenders such as business cash advances, invoice factoring, etc.


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