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  • Jacob Bennett

How Collaborating with Small Businesses Can Grow Your Financial Institution

One of the principal ways that financial institutions can support the economy is by working with small business clients. In addition to supporting their local economy, partnering with small businesses can help financial institutions increase profitability through additional, lower-cost deposits and interest payments. Building solid relationships with local small businesses can also help banks with customer loyalty and retention.

Credit Unions and Community Banks are uniquely positioned to help small businesses because of their integration into the community and understanding of small businesses' challenges. Combine that with targeted data from Crux Analytics, and your financial institution can go from struggling to maintain thin profit margins to creating a steady stream of profitability.

The State of Small Businesses in the U.S.

Within the U.S. economy, small businesses are critical drivers of innovation and job creation, with roughly half of all Americans in the labor force employed by or running a small business. However, recent data from the Federal Reserve Banks’ Small Business Credit Survey has shown that small businesses face significant economic adversity, with 59% reporting that they're in fair or poor financial condition. And what's bad for small businesses is bad for the rest of the economy.

It’s not all doom and gloom, however. For the first time since 2020, small businesses have been more likely than not to report that their revenues, and employment levels are increasing rather than decreasing. The survey also notes an up-tic in small businesses seeking financing. This means the iron is hot for financial institutions looking to increase their small business loan offerings. But lending shouldn’t be the only focus – small business checking and savings accounts are also critical for getting more deposits, increasing profitability, and improving customer loyalty.

Why Community Banks Should Prioritize Small Businesses

While many financial institutions are actively working with small businesses, transparency issues can complicate the relationship. Small businesses are applying less and less for funding from small financial institutions, turning instead in greater numbers to large banks and non-traditional lenders. However, the percentage of applicants receiving all the funding they apply for has decreased. This means there is an opportunity for smaller financial institutions to pursue small businesses for the benefits those relationships offer to both sides.

Community banks have suffered financially for the last few years, even as the overall banking industry continues to grow (2.3% in 2023). In 2023’s final quarterly banking profile, FDIC chairman Martin Guenberg reported that community banks reported a net income down 7.1 percent from the previous year, primarily because of higher operational costs. In addition, the cost of deposits is increasing for banks, leading to even thinner margins for banks already struggling to stay afloat. While Credit Unions have fared better, many still face a pressing liquidity crunch given market conditions. Partnering with small businesses can help financial institutions combat these higher costs and balance sheet needs, while simultaneously creating bridges to new retail accounts through a small business’ larger network.

Long-term Customer Relationships for Growth

Long-term customers make up the backbone of most businesses. Working with small businesses has a strategic advantage for financial institutions because it tends to create a lasting customer relationship that isn't found with larger firms.

Smaller financial institutions have the advantage over larger banks because of the proximity and local knowledge they bring to the table. Customers report greater satisfaction with their banking experience with small institutions over those who worked with large institutions, finance companies, or online lenders. Crux is helping financial institutions start their customer relationships on the right foot with company-specific data that allows them to be proactive instead of reactive. When banks anticipate customers' needs, they can efficiently offer customized solutions that build trust and loyalty. Crux Analytics can help your financial institution fully leverage the benefits of banking small businesses, which bring lower-cost deposits, interact with a greater range of financial services, and bring a wider network of new accounts to drive 3-7x more deposits and  4-6x more profit than retail accounts.

Economic and Community Impact

Financial institutions’ health is tied directly to the economic health of their communities. As small businesses grow, they make more (and higher-value) deposits, directly impacting a financial institution's profitability. At the same time, small businesses bring direct economic benefits to local and national economies, including creating jobs and bringing in tax revenues. When a financial institution's small business clients win, everyone in the community wins.

When banks commit to helping boost their local economies, they foster a deeper level of trust and loyalty that larger, more impersonal financial entities can't replicate. The resulting relationships are mutually beneficial, driving both the growth of small businesses and the financial success of the institutions that support them.

How To Skip the Guesswork

Your institution may want to increase its number of small business accounts, but the question of how to achieve that is often top of mind. A significant information gap between financial institutions and small businesses makes efficient engagement difficult, if not impossible.

That’s why Crux Analytics now offers business-specific, hyper-local market analytics, which gives your financial institution a level of insight previously only available into big businesses. Our technology allows you to quickly and accurately assess the market-driven risks and opportunities faced by any given company in any specific location, empowering you to pursue the businesses with the highest likelihood of success.

Chat with us today to find out how we can help, and try a demo of our software.



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