There's something broken in small-business lending
Banks often tout the strength of their small-business loan programs. So why are their small-business customers so hacked off?
It’s hardly an enigma, according to J.D. Power. The thing that sticks in the craw of most small-business owners is that their banks have not assigned account representatives to take care of their needs, the market research firm said in its latest Small Business Banking Satisfaction Study.
What’s the holdup? It turns out that many banks have determined they should not spend money on account reps. That is a big mistake, said Bob Neuhaus, financial services consultant at J.D. Power.
“When there’s an account manager who understands the small business, it makes a huge difference,” Neuhaus said. “But banks have decided they can’t afford the one-on-one contact.”
If they want to sell more products to small businesses, banks had better get busy changing that mindset, he said.
“This is an underserved market, and banks are vulnerable to losing these customers” and their lending business, Neuhaus said. Rival banks, credit unions and online marketplace lenders are all threats to swipe this potentially lucrative customer base.
Some banks are doing a better job than others, based on surveys that J.D. Power conducted in four regions of the country. Banks were scored on a 1,000-point scale on items like amount and frequency of fees and how a bank resolves problems.
In the Northeast, M&T Bank in Buffalo, N.Y., was the top performer (815 points) and Santander Bank came in last (739 points). Citibank prevailed in the Midwest (839) and Wells Fargo had the worst score (781). In the South, TD Bank (819) came out on top and Bank of America (786) brought up the rear. And in the West, JPMorgan Chase was best (819) and Union Bank (743) worst.
"What’s most important to us is listening to our customers, understanding their needs, addressing any concerns, and providing them exceptional service and guidance to help them succeed financially," said Wells Fargo spokesman Jim Seitz, who added that the company appreciated J.D. Power's insight.
"We are working hard to improve the customer experience for our small-business customers," Seitz said in an email.
Santander has expanded its number of small-business relationship managers, "enhanced our training program to improve the customer experience, decreased our loan decision time and launched a Business Banking mobile app for our business banking customers," Amir Madjlessi, managing director of business banking, said in an email. "We are starting to see an impact from these initiatives."
B of A is striving “for exceptional client care” and has added small-business lending products and doubled its number of Small Business Administration lending specialists, spokesman Don Vecchiarello said in an email.
“While we don’t believe our new additions and improved solutions have factored into our scores yet, we are hearing great feedback from our clients," Vecchiarello said.
Union Bank did not comment.
While some banks scored well in this year’s J.D. Power study, the overall aggregate score declined compared with 2016. The drop was largely a result of poor performance in account activities, problem resolution and fees — as well as the lack of assigning an account rep to a small business.
Often those small businesses had obtained other services from the bank, like a checking account or cash management services. But the process of applying for a loan that can really help a bank develop closer ties with a small business, Neuhaus said.
“They may not need a loan at the time and as a result, they will fall below the radar compared to customers who are borrowing from the bank,” Neuhaus said. Banks need to figure out a way to get those businesses more attentive service before they become borrowers and once they seek loans, he said.
Banks certainly view small businesses as a key customer group, even if they do not always do a great job serving them. Earlier this month, Tim Laney, chairman and CEO of the $5 billion-asset National Bank Holdings, said the Greenwood Village, Colo., company’s focus on serving small-business clients has helped with one of its key goals: boosting commercial deposits.
“What excites us the most is what we’re seeing as it relates to growth in our core demand deposits,” Laney said during an Oct. 19 conference call. “We think that’s a reflection of this continued focus on expanding relationships, particularly with our small-business clients.”
And in February, Wells Fargo bragged about its volume of SBA loans when the company announced a new website aimed at small businesses.
"As America’s No. 1 small-business lender, we are committed to increasing understanding of the credit process and educating business owners on how credit can be used responsibly to help them succeed," Lisa Stevens, head of small business at Wells Fargo, said in a news release at the time.
While it may be a mistake for banks to not assign an account manager to a small business, there can be a worse problem — assigning an account rep who does not understand individual customers or their needs. The respondents in the J.D. Power study gave banks lower scores when that happened.
Banks, you have been warned.