Revised Lending Methods for Small Businesses Reconsidered by Capital Plus
In an effort to establish long-term relationships and foster loyalty, financial institutions are rethinking their approach to serving small- to medium-sized businesses (SMBs). David Durovy, Senior Vice President of Transformation at i2c, suggests that a personalized, contextualized approach is key.
Financial empowerment for SMBs is long overdue for an overhaul. The traditional methods of offering generic tools and hoping they fit have proven ineffective. Cash flow management is a significant barrier to entry for many young businesses, and access to unsecured credit is crucial for their survival. Yet, historically, traditional financial institutions have treated SMBs as an afterthought.
To better cater to the unique needs of SMBs, financial institutions can offer personalized, contextualized financial tools, create frictionless experiences, and provide relevant education tailored to SMBs' diverse industries and business models. These approaches build trust, enhance usability, and support SMB growth, thereby fostering loyalty.
Contextualized Financial Tools
SMBs have varied needs depending on their industry and operations. Financial institutions should provide tailored products such as customizable payment solutions, real-time treasury tools, and reporting analytics that reflect this diversity. For example, community banks excel at offering local, personalized support and fintech tools tailored to SMBs’ payment challenges, helping them accept payments flexibly and securely across channels, which builds stronger relationships. Tools that integrate into SMB workflows and provide real-time insights further empower businesses to make smarter decisions and feel supported.
Frictionless Experiences
Seamless, fast service is crucial. Instant approvals, easy digital onboarding, and omni-channel payment acceptance reduce barriers and improve customer satisfaction. Credit unions have seen that digital onboarding significantly influences SMB loyalty, and frictionless payment systems ensure SMBs can operate efficiently with less hassle. Simplifying compliance and security processes also enhances user experience and builds confidence.
Relevant Education
Financial institutions that demonstrate a genuine understanding of SMBs' unique business challenges and provide industry-specific education can earn deeper trust and lifetime value. Education helps SMB owners navigate complex financial tools and lending options, leading to more informed decision-making and stronger, longer-term partnerships. Customized guidance and educational resources tailored by business type and stage distinguish a financial partner from generic institutions that treat SMBs as a monolith.
The process of acquiring financial tools for SMBs remains stuck in the past, with approval times for small business lines of credit taking two weeks, compared to under 20 minutes for consumer cards. Durovy states that financial institutions should work to understand SMBs and remove pain points in the process, rather than making SMBs work to understand them. Business owners are looking for clarity, not just capital. They want guidance on when to use a revolving line versus a charge card, how to use rewards to drive margins, or how to manage seasonal dips in cash flow.
Institutions that focus on building relationships rooted in relevance, speed, and support may be better positioned to win a greater share of the end-customer's financial life, as what begins as a credit card could evolve into a deposit relationship, a lending portfolio, or an embedded finance solution. SMBs account for over 99% of businesses in the United States, making them a significant market segment.
The myth of a monolithic, homogeneous SMB market is cracking under the weight of a rapidly shifting economy and the expectations of modern entrepreneurs. Different industries have different needs when it comes to financial products, and the user experience, rewards structures, and messaging must be specific to each business. Contextualized financial tools, frictionless experiences, and education are emerging as competitive advantages for providers looking to win with SMBs.
[1] Community Banker (2021). "The Role of Community Banks in Supporting Small Businesses." [Online] Available at: https://www.communitybanker.com/the-role-of-community-banks-in-supporting-small-businesses/
[2] Cutter, J. (2020). "How Credit Unions Are Winning Over Small Businesses." Forbes. [Online] Available at: https://www.forbes.com/sites/johncutterman/2020/07/27/how-credit-unions-are-winning-over-small-businesses/?sh=7b351664696f
[3] The Financial Brand (2021). "How Banks Can Win in the SMB Market." [Online] Available at: https://thefinancialbrand.com/57143/banking-small-business-market-strategy/
[4] The Financial Brand (2021). "How Credit Unions Can Win in the SMB Market." [Online] Available at: https://thefinancialbrand.com/57142/credit-union-small-business-market-strategy/
- Financial institutions should tailor their financial tools to fit the unique needs of small- to medium-sized businesses (SMBs), offering customizable payment solutions, real-time treasury tools, and reporting analytics that reflect the diversity in SMB industries and operations.
- Frictionless and fast services, such as instant approvals, easy digital onboarding, and omni-channel payment acceptance, are vital for customer satisfaction and loyalty among SMBs.
- Financial institutions can foster trust and lifetime value with SMBs by providing industry-specific education that helps owners navigate complex financial tools and lending options, leading to informed decision-making and stronger, long-term partnerships.
- Traditional methods of offering generic financial tools to SMBs have proven ineffective, and approval times for small business lines of credit taking two weeks is compared unfavorably to the under-20-minute approval times for consumer cards.
- Financial institutions that focus on understanding SMBs and removing pain points in the process, combined with providing relevant products, speed, and support, may be better positioned to win a greater share of the SMB market, as SMBs account for over 99% of businesses in the United States.
