Abstract
NEW RESEARCH REPORT BY MERCATOR ADVISORY GROUP
Banks are realizing small businesses are a rich source of deposits and profits
for banks. They represent the largest business segment with 27 million
businesses. This report explores ways for banks to attract and protect their
small business customers from aggressive banks and nonbank predators?
Small business market as defined by the SBA is businesses with less than 500
employees. However, a company with 5 employees looks and acts completely
differently than a 400 employee company. To be successful in this space banks
need to look closer. For example, Small Office and Home Office (SOHO)
sometimes fall under the bank' s radar lost in retail banking. SOHO make up the
vast majority of small business total, 19 million SOHO compared to 8 million
small businesses.
SOHO businesses can be small doctor or dentist offices, an independent CPA,
consultants, architects, or start-up companies just getting going. These
businesses are very important to banks because their banking relationships
haven' t matured. Identifying SOHO businesses is a key challenge since most
operate with regular checking accounts. SOHO' s can easily be serviced at local
bank branches. Banks should have the advantage in capturing the rest of their
relationship. But like traditional small businesses SOHO' s are interested in
reliable services that save time and money. As a small business matures they
require more financial services making it difficult for them to leave the bank.
Industry segmentation enables banks to identify and concentrate on small
business niche markets that provide the greatest paycheck. Some banks are
customizing banking solutions for specific small business niche market
segments. For example elective surgery can be very expensive. One way banks
can help is by offering doctors a patient financing solution guaranteeing
their payment and allows the patient a choice of payment plans, spreading
payments over a period of time, 12 to 24 months. This makes the procedure
affordable and doctors do not have to finance their patients.
The small business community is worried that the mortgage crisis will spill
over to small business financing making it harder for their local banks to
offer credit lines. For growing small businesses this means looking at
alternative financing. Small business will be attracted to banking services
like payroll help small business reduce operation costs by freeing up
resources. Insurance products and affordable health benefits for employees
help businesses during tight credit times.
Sarsha Adrian, Senior Research Analyst, in Mercator Advisory Group' s
Corporate Banking practice and author of this report, comments; "the small
business market is very diverse, to help understand small business this report
breaks down the small business market by SOHO and businesses over 5 employees.
Retiring baby boomers starting their second careers look to their banks for
advice and services. Small medical or dental practices are another example of
SOHO businesses that can develop into deposit relationships."
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