BOCA RATON, Fla. — A growing number of banks are looking past the short-term economic challenges and betting on a small-business recovery.

Overall small-business lending levels are shrinking, as banks keep credit standards tight and worries about the economy and tax hikes keep many business owners from making big investments or financially overextending themselves. But some banks are still expanding their small-business banking, seeing several incentives to competing for these customers.

Banks including Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) are hiring small-business bankers by the hundreds, opening new offices and rethinking how best to cultivate customers who need more than one loan or deposit account. Small businesses can be especially lucrative for banks because they often buy a suite of fee-generating services. Serving them also tends to help boost banks' reputations, at least in local communities.

Banks that have long cultivated small businesses recently testified about potential payoffs.

"Small business is a very profitable line of business for our company," Citizens Republic (CRBC) chief executive Cathleen "Cathy" Nash said during a speech this month at SourceMedia's annual Small Business Banking conference in Florida.

"In our company, a small-business owner that has its operating accounts with us, that borrows from us, and that uses a suite of treasury management products is our most profitable client," even if the owner doesn't have personal accounts at the bank, she added.

Small banks have long seemed best able to cultivate these customers, partially due "high-touch" banking they can offer, but big banks are increasingly trying to replicate some of their success.

Nash began her speech by reading from an American Banker article about Bank of America hiring dozens of small-business bankers, as part of a campaign to add 1,000 such specialized staffers nationally. Other speakers at the event remarked on how much attention JPMorgan has devoted to the market recently; Jim Miller of J.D. Power and Associates, who announced the results of its annual small-business customer satisfaction survey at the conference, singled out the country's largest bank for vaulting to fifth place in the rankings this year, up from 21st place (out of 25) last year.

JPMorgan and other large banks are essentially trying to copy from the small-bank playbook on a grander scale, said Ginger Siegel, an executive vice president of business banking at PNC Financial Services (PNC).

"The places where small banks did better is, they could have the business owner call the president of the bank, and that would make you feel important. So what Chase [and other big banks have] done is adding more business bankers. They're trying to create a more personalized level of service" at a large bank level, Siegel said in an interview.

She added that staffing up is only one part of successfully acquiring and keeping small-business customers; banks also have to patiently maintain the relationship and stop trying to blindly push products, regardless of the small-business customer's needs.

"As banks, you have got to realize … this cannot be just about what we want to sell. You have got to dig underneath and understand the client's industry, their business, and have a conversation about where their pain points are," she said.

"Maybe it's a line of credit, maybe it's getting money in quicker, maybe it's cash management or treasury management services that are helping them get money in quicker, like a lockbox, but we can't just assume … we need business owners to understand that we are going to do everything we can to put them in the right solution," Siegel added. "Banks have to stop just throwing stuff at customers."

Siegel has worked for a range of banks of different sizes, including Citigroup (NYSE: C), Webster Financial (WBS) in Waterbury, Conn., and RBC Bank in Raleigh, N.C., before PNC bought the bank from Royal Bank of Canada earlier this year. She argued that superregionals like PNC are now the best positioned to capitalize on small-business owners' banking needs, while having the resources to deal with the increasing regulations facing the industry.

"When you think about the really big banks and the regionals, they have the infrastructure to create a way to reach their customers remotely, through technology [or] in a branch. They have the capital in most cases to withstand some of the additional costs" from regulations, including Basel III capital requirements, she said.

Over three days at the Boca Raton Resort in Florida this month, bankers discussed strategies for competing for small-business customers while also juggling the uncertain economy and the effects of Hurricane Sandy. Some bankers traded tips about the best ways to reach customers through technology; Bank of America's David Tremblay discussed the bank's specialized call centers for small-business owners during one event.

"You can manage 400 to 600 clients on your phone, or you can manage 100 to 150 by jumping in your car and driving around," Tremblay, business development and strategy executive of the client development group at Bank of America Merrill Lynch, said during a panel discussion.

But sometimes the most traditional strategies are the most successful. Nash said that offering that personalized service, and experienced bankers, can help smaller banks beat out their larger rivals for small businesses.

"Our larger-size competitors usually had very inexperienced bankers assigned to that segment. We had bankers with 20 to 25 years experience. Sometimes having grey hair does pay off," she told the audience.

Small-business bankers within larger companies also face an internal competition for resources, and the need to justify a line of business that can bring steady, if not flashy, returns. During one panel discussion at the conference, Kent Stone of U.S. Bancorp (USB) compared his unit to a reliable, boring car.

"Small business is like the Toyota Corolla. It runs forever and everyone thinks it's ok," said Stone, an executive vice president at U.S. Bank. "It's not sexy."

He added that small business banking amounts to 15% of U.S. Bank's consumer bank revenue, though it would be more like a quarter of the consumer bank's revenue without the recent surge of mortgage refinance business.

"We're a good part of the business, and we're sometimes taken for granted," Stone said.

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