The absence of opportunities to generate new earning assets has driven large banks to explore business lines other than the large corporate lending market.

During the late 1980s, many banks discovered the "middle market" - too many. Poor planning and execution as well as increasing competition reduced the profit margins in this business.

The consolidation boom left major banks with large and costly branch networks. Many of these banks are building efficient and effective asset generation capabilities to take advantage of these networks, but there are limits to the consumer's desire to take on additional debt.

Thus, these large banks are looking for other ways to use their branch networks to generate assets.

What Small Business Wants

There are nearly four million small business in the United States, representing nearly 57% of total jobs, 54% of job growth, 40% of gross domestic product, and nearly 40% of all outstanding private debt.

Small businesses depend on their financial institutions primarily for credit, but also for deposit and investment products.

The owners of these firms also depend on a range of personal banking services from their banks.

Small businesses are willing to pay for these services. The spreads and profitability on small-business relationships can far exceed those on other kinds of commercial accounts.

Small business want bankers who can understand their business, knowledgeable contacts for all their services, quick response, and a local financial institution that can serve their needs. Convenience is the key.

Lost Opportunity

Commercial banks, even community banks, have lost their edge in serving the needs of these businesses. Commercial-bank lending to this market has been declining over the last 10 years while alternative sources, such as finance companies, have been growing their lending to small business at double-digit rates.

With the dearth of other asset opportunities, large branch banks are looking longingly at the small-business market.

They have lots of locations, a cadre of well-trained bankers, and the balance sheet strength and product diversity to provide the small business with one-stop shopping.

To serve this market, large banks must focus their marketing efforts with a series of common products.

They must staff their banking and support functions efficiently to deliver credit and noncredit products to the business and business owner. Efficiency not only provides the bank with competitive margins, but offers the ability to provide superior service and responsiveness.

Lending Capacity

Finally, large banks must take advantage of their ability to generate a sizable portfolio of small-business assets. This will enable them to diversify their risk and make more loans to the small-business market.

With a large local presence through their branches, depth of lending experience, efficient delivery of a variety of credit and noncredit products, and the resources and strength to support the business, some large banks will learn to be strong and successful providers to the small-business market.

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