Raddon Research Insights. Winning Small Business Customers

Transcription

1 Winning Small Business Customers

2 Executive Summary Winning Small Business Customers Small business owners are cautiously optimistic about the economy and future business prospects. As optimism about the future increases, financial institutions have the opportunity to expand their small business market share with more businesses seeking loans and other financial products and services. While major banks currently control the small business market with 68 percent of primary financial institution (PFI) relationships, there are also opportunities for community-based financial institutions to capture market share, with small business owners indicating a likelihood to work with such institutions in the future. Business Resources Small business owners face many challenges running their companies with limited resources from concerns about the economy and attracting new customers to hiring and retaining good employees. Most Important Challenges Facing Small Business The Economy New Customers/New Business Costs of Running the Business Financial Stability/Cash Flow Taxes Hiring/Retaining Good Employees Healthcare/ObamaCare Competition = Large Corporations/Internet Government Regulation Employee Benefits Credit Availability None/Nothing 3% 14% 17% 23% 21% 26% 32% 32% 31% 54% 53% Q: What are the most important challenges facing your business? Small business owners perception of the economy influences their outlook for growth potential, shapes their banking needs and determines the role financial institutions can play in supporting their growth. Overall, 79 percent of small businesses said they anticipated some form of growth in the coming years. Of those expecting growth, about a third (38 percent) said they plan to use a business 1

3 line of credit to help spur growth, whereas 22 percent said they plan to use a business loan. These percentages rise to 50 percent for a business line of credit and 26 percent for a business loan among larger small businesses with $2 million to $10 million in annual sales. Projected Source of Funding for Business Growth, by Size of Business 60% 50% 50% 50% 40% 30% 20% 38% 22% 21% 34% 19% 19% 27% 26% % Total < $100K $100K $499K $500K $1.9M $2M $10M Business Line of Credit Earnings Reinvestment Product/Service Price Increase Business Loan Owner Equity Infusion Owner Equity Credit Product Q: Will your firm be using any of the following in the future to support your growth plans? Major Bank Market Share Approximately two out of three small business owners claimed one of the top six U.S. banks as their PFI, with the remaining 32 percent split between regional banks, community banks and credit unions. By comparison, just 41 percent of retail consumers cite a major bank as their PFI. 2

4 Primary Financial Institution (PFI) Small Business vs. Retail Consumers 68% 41% 19% 19% 19% 13% 6% 2% 1% Major Bank Regional Bank Community Bank Credit Union No PFI Small Business Retail Consumers Q: Please indicate which financial institution you consider to be your company s primary or most important source of business financial services. Some of the contributing factors that have allowed major banks to increase small business market share include: Complexity of needs of larger small businesses Perception of greater expertise and more expansive products and services Availability of customized solutions and advanced technology solutions Specialized employees and business bankers that can effectively build strong relationships The branch network and the convenience it offers to small businesses Pricing using scale to win on price Importance of Technology Major bank small business customers were the most likely to cite the importance of technology as a factor in deciding whether to use a financial institution s services. Among small business customers that use a major bank as their primary financial institution (PFI), 66 percent indicate the technology resources available at the institution influenced their decision to use the bank, with 29 percent saying it strongly influenced their decision. For small businesses with a regional bank as their PFI, 39 percent said technology influenced their decision, with 9 percent saying it was a strong influence. For small businesses with a community bank as their PFI, 31 percent said technology influenced them, with 10 percent saying it was a strong influence. Small businesses with a credit union as their PFI also showed a significant interest in technology, with 42 saying technology influenced their decision and 16 percent saying it was a strong influence. Although 91 percent of small business customers still make branch visits in a typical month, technology is starting to reduce branch traffic. Forty-two percent of small businesses indicated they now use branch lobbies and drive-ups less frequently due to the availability of online banking, mobile 3

5 banking, and remote deposit. Looking forward, one in three small businesses (36 percent) think technologies such as mobile and online banking could potentially replace their need for a branch office of their PFI near their place of business. The Opportunity Despite the dominance of the largest financial institutions, there is an opportunity for other types of financial institutions to grow small business customer accounts. Over 50 percent of small businesses that currently do not use a community bank for their primary or secondary institution said they were extremely or very likely to consider using a community bank in the future, and 38 percent said the same for a credit union. Regional banks, community banks, and credit unions can be successful at growing their small business customer base by demonstrating that they understand business owners challenges, have the expertise these customers need, and can deliver the technology, products, and services to help small businesses grow. At the same time, regional banks, community banks, and credit unions can leverage their strengths in areas that are important to small businesses, such as quality service and local ownership/management. 4