April 9, 2020 | Marcus Rothaar
As many small businesses struggle to navigate the COVID-19 pandemic, financial institutions have an opportunity to step in and extend a lifeline to small business owners, many of whom are relying on their financial institutions to provide resources, insight and stability.
By proactively reaching out to small business owners, instituting provisions to provide them relief, and connecting them with local, state and federal programs, financial institutions can make a meaningful difference now and create long-term loyalty among small business accountholders.
Running a small business and managing cash flow can be a challenging endeavor even in normal circumstances. In the Raddon 2019 survey of 1,200 U.S. small business owners, 29 percent reported being mentally fatigued and feeling exhausted most of the time. Also consider:
Despite these challenges, most small business owners wouldn’t have it any other way. When surveyed last year:
Small business owners recognize the inherent challenges involved in what they do, but these are outweighed by the benefits. It’s this entrepreneurial spirit that will help small businesses eventually enjoy a strong rebound after the current crisis. But they will need help, and there are several ways in which financial institutions can assist.
As you continue to build out and modify your communication plan, messages to small businesses should detail the resources you can offer. Senior leadership should be involved in the communication to the entire base, along with direct outreach from your commercial lenders and small business specialists to help prioritize and triage the needs of your current clients and offer them assistance before they seek alternate solutions. Messaging to small businesses should include help in downloading apps, using remote deposit capture, and loan application assistance. The communication plans highlighted in earlier Raddon Report articles apply to small businesses, as well.
While targeting messages to your existing small business clients, don’t neglect your retail consumer base. Raddon Research Insights data shows that major banks are cited as the primary financial institution (PFI) by 70 percent of small businesses but are the PFI for only 40 percent of the general consumer population. Collectively, community banks and credit unions control 40 percent of consumer PFI relationships but only 16 percent of the small business PFI share.
The implication is that many small business owners in the retail base use the community financial institution for their personal banking needs, but they turn to a major bank to fulfill their small business needs. Broadcast the efforts you’re taking to help small businesses in your community to this group. While your existing commercial and business clients should be the top priority in terms of messaging about business services, the rest of the account base should be aware of the support you’re extending to businesses in your community.
Financial institutions should familiarize themselves with the assistance for small businesses created through the Coronavirus Aid, Relief and Economic Security (CARES) Act, and be prepared to help small businesses navigate the various resources available. A few key resources include:
There are countless other state and local grants and resources being made available to assist small businesses during the pandemic, and a partial list is available. Continue to monitor resources from the SBA as new additions and changes occur frequently
Other initiatives that financial institutions are implementing to help support small business include:
Now more than ever, your online and mobile banking tools will be front and center as social distancing becomes the norm. The Raddon research that showed 70 percent of small businesses use a major bank for their primary financial institution also revealed technology is a key driver in the selection of a financial institution. In fact, 24 percent of businesses using a major bank indicated they would be extremely likely to switch to a community-based institution if the technology offered was perceived to be the same. Of course, that doesn’t mean a major overhaul of your website is required today, but you should continue to highlight the digital tools that you do have available and aim to make loan processes as easy as possible.
In the same Raddon survey of small business owners, 47 percent agreed that getting a business loan is a long and difficult process. Four out of 10 also felt it was easier to obtain financing through an online lender. In many ways, the value proposition of online lenders was built for a situation like the current crisis, with the promise of an easy application, quick decisioning and immediate funding. Making the loan process more efficient should be top of mind for traditional lenders, both during and after the crisis.
Small businesses are the economic drivers of our communities. Helping small businesses through these difficult times will help ensure they are ready and able to play a role in our collective economic recovery from the COVID-19 pandemic. The current crisis is an opportunity for financial institutions to step up when it matters the most to help small business clients. Not only is it the right thing to do, but it will also position your financial institution for future business growth after small businesses emerge victorious from the current challenges.
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