Banks stepped up their marketing efforts and increased their small- business services to better compete with nonbank rivals, according to the Consumer Bankers Association's 1997 small-business study.
Although banks still view other banks as their primary competitors, the 45 bankers surveyed said Merrill Lynch, American Express, and GE Credit represent a growing threat.
James Schmitt, director of business banking management for Norwest Corp. and a member of the group's small-business committee, said the survey of bank small-business loan practices should serve as a wake-up call for bankers.
"We need to be quite vigilant," Mr. Schmitt said. "The typical small business feels they are low on the priority list of the bank they do business with.
"When someone one else actively solicits their business and pre-approves them for credit, it is a great compliment to them," Mr. Schmitt said.
The study found the larger banks, which tend to view the nonbanks as more of a threat, have more intensive marketing efforts and use a direct sales force to gain new accounts.
While bank sales staffs and internal referrals were the most frequently used methods of attracting small-business customers, direct mail, telemarketing, and print advertisement were each mentioned by more than a quarter of the respondents.
But those marketing efforts add to the cost of making small-business loans. The median minimum profitable loan for the banks with extensive marketing efforts was $25,000, compared with $10,000 for banks with less intensive marketing efforts.
Many of the banks surveyed added sweep accounts, overdraft protection, cash-management products, and telephone, ATM, or computer banking services in the last year.
The banks also increased their mutual fund products and asset-based lending services, which are traditionally offered by nonbanks, the survey found.
Seventy-one percent of the banks surveyed use incentive compensation to pay their sales staffs based on the volume of business they generate.