Main Street Wants Bigger Small Business Bite

Community banks are steadily loosening the stranglehold that the nation's big banks have on the small business market, according to a report from Boston-based consultant Aite Group. It's still too early to tell for sure how small-business owners will react to the financial meltdown - will they run to the likes of Bank of America or will they walk down Main Street to their community bank? - but given the results of the Aite report, community bankers should take heart.

Eighty-seven percent of the top 50 banks say they are "finding themselves competing more against community banks for small-business customers than they did three years ago." Furthermore, in a survey of small-business owners, only 36 percent were completely satisfied with the service they received from their "top 50" bank. Nearly half of community bank customers said they were satisfied, higher than any other segment, and one-third of small businesses use a community bank as its primary financial institution.

The reason for community banks' success in the small-business market is improvement in technology and their natural ability to establish tight relationships, says Aite's research director Christine Barry. She points to community banks' leadership in replacing their core banking systems, advancements in online banking solutions for businesses, remote deposit capture and their ability deliver that "personal touch."

Seacoast Commerce Bank's CEO Richard Sanborn says his bank has become the leading SBA lender in San Diego County by having high-touch relationships with small-business owners. "The bigger banks try to play the numbers game where they're more concerned about putting a certain number of SBA loans on the books, so they tend to use the express program, which is a much quicker program for them to process but they only get a 50-percent guarantee," Sanborn says. "We don't do credit scoring, we are more of a traditional small-business bank where we are hands on with the customer...and we can not only manage their credit but we can manage their full-banking relationship. We are much more relationship focused."

Seacoast is a tiny bank of just over $75 million in total assets and is headquartered in Chula Vista, CA. Sanborn says traditional marketing won't work for a bank of Seacoast's size. To capture business the bank has developed tight relationships with local CPAs and commercial real estate brokers, relying on those professionals for referrals. "We don't have a $40 billion marketing budget like Bank of America, so our business has been built on referrals and having feet on the street."

Despite the big banks' express programs, Sanborn says community banks can still approve deals quicker than many larger banks when need be. "A lot of times people will get proposals from big banks and they just can't deliver or they can't deliver quickly," he says, whereas Seacoast can turn around an SBA non real estate loan in two weeks, and a real estate loan in three weeks. At a large-tier bank it can take three months, Sanborn says.

In Northern California, $648 million-asset Tamalpais Bank, which is based out of San Rafael, has grown its portfolio by recruiting officers with deep backgrounds in small business. The bank's niche is in hospitality services. Starting in late 2003 Tamalpais began hiring loan officers with MBAs in hospitality, says the bank's Chief Lending Officer Michael Rice. One business development officer they hired has over 10 years of bed and breakfast financing experience. "We started to target hiring very qualified business bankers with experience," he says. "The business bankers that we recruited to assist in small-business lending typically had a background in underwriting and approving a loan. A big part of our focus was to hire loan origination people that had either prior credit authority or very strong credit analysis skills."

Rice says community banks have a hiring advantage over bigger banks because many loan officers like the hands-on approach at smaller banks. "Many of the strongest small business loan officers tend to gravitate toward community banks because they want an impact in the full relationship of their client," he says.

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