Musings from a community bank payments strategist and full-time hockey fanatic

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Small Business Lending Opens Doors to Payment Product Opportunities

May 02, 2019
Community banks make more than 60 percent of all U.S. small business loans. Through quality products and services, a relationship built on trust and responsiveness, and an unparalleled knowledge of the local market, community banks fuel an economic environment for small businesses to flourish.

And a thriving customer is a happy customer. In fact, small business loan applicants are more satisfied with community banks than any other type of lender. The newly released 2019 Small Business Credit Survey from the 12 Federal Reserve Banks concluded that 79 percent of small business loan applicants are satisfied with community banks, compared to only 49 percent for online lenders. The study also revealed 65 percent of small businesses choose community banks for financing based on their existing relationships with the institutions.

Beyond highlighting the positive role community banks serve in funding small businesses, the study uncovered areas that provide opportunities for greater engagement. For example, 31 percent of employer firms indicated they faced credit availability issues, and 20 percent were looking for small-dollar financing of $25,000 or less. Yet, according to the Small Business Administration, only 3.3 percent of small businesses seek business credit cards to expand their organizations.

By parlaying loans into payments products and services, such as credit cards, banks can fulfill the smaller-dollar, shorter-term resources needed by many small businesses as they evolve.

Providing multiple product offerings also strengthens community bank customer relationships, which in turn can support the bank’s bottom line.

Once created, this multi-pronged union goes a long way. Eighty percent of small-to-medium businesses using a community bank’s credit card place it top of wallet, according to an ICBA Bancard study conducted with A.T. Kearney. Anecdotally, ICBA Bancard and its subsidiary, TCM Bank, have seen a sharp uptick in community banks interested in relaunching their credit card programs in the past year.

For community banks looking to deepen small business relationships, credit cards, which can be tailored to a bank’s risk profile and desired level of oversight, could be just the ticket. It’s something to consider as the number of small-and-medium businesses rises and could help your bank obtain top-of-wallet and top-of-mind status with this important customer segment.

The Gig Economy
Independent contractor-style freelancers now make up 35.6 percent of the U.S. workforce as of the third quarter of 2018, according to a PYMNTs.com study.

While these side businesses don’t automatically equate to business accounts, exploring the financing needs of this growing niche through small business cards could support existing customer relationships and provide the necessary funds to help these blossoming businesses take root.

According to the SBA, 22.5 percent of firms with employees and 39.5 percent of non-employer firms need less than $5,000 to start their business.

Tina Giorgio is President and CEO of ICBA Bancard, the payments services subsidiary of ICBA.