Take This Hand
If there's a credit squeeze on lending to small businesses, or if competition for entrepreneurs' business has slackened, somebody forgot to tell the banks-particularly the big ones. "Boy, I don't feel that," says Joan Gulley, CEO of Business Banking for PNC Financial Services Group. "There might be pockets here or there where someone has pulled back, but it's still a very competitive environment."
So competitive, in fact, that big banks are falling over themselves to show that the small-business market is a top priority. Pittsburgh-based PNC recently announced plans to lend $12 billion to new and existing small-business customers over the next three years, an increase of about 10 percent per year. That announcement came on the heels of the bank's decision to drastically cut back corporate lending to reduce risk.
Other banks have re-examined their corporate lending standards following an increase in high-profile bankruptcies and credit problems among large businesses. Indeed, in its most recent survey, the U.S. Office of the Comptroller of the Currency found that 55 percent of the 65 largest national banks say their loan standards are getting more rigid. But Jennifer Thompson, senior vice president and bank analyst for Putnam Lovell Securities, says that while banks have been more careful in terms of their underwriting criteria over the past year and a half, small businesses have not been hurt disproportionately.
The top 1% of income earners live on just
of their income and save remainder.
SOURCE: Accenture Institute for Strategic Change
At Boston-based FleetBoston Financial, for one, small-business customers are looking much better relative to their big-business counterparts, says executive vice president and manager of regional small-business banking Ralph Sillari. Fleet saw an increase in small-business credit commitments of 30 percent in 2001 over 2000, and 15 percent growth in the first quarter 2002 over the same period in 2001. With some 500,000 small-business customers, the bank also led the league in SBA-guaranteed loans, with the average loan at about $60,000, in 2001. Says Sillari, "We are not thinking that this is a time to pull back."
No Small Matter
While the lending itself does not represent major profit potential for banks, the opportunity to cross-sell other small-business products-such as payroll services, retirement plans and medical savings accounts-is huge, says Thompson. Once it brings an entrepreneur on board, the bank can also go after personal deposit and lending business-something that's not practical with corporate customers.
That opportunity has not been lost on PNC, which regards lending as an entrée into the total relationship with the entrepreneur. "[It's] a litmus test of the relationship," says Gulley. If the bank can prove it's committed by shelling out more in loans and credit, then it has a better chance of selling its bread-and-butter products, including personal and business banking, 401(k), treasury management and brokerage services. To help support those products, PNC has added 200 bankers in the last year and has designed call centers dedicated to small-business banking.
Other banks have been beefing up their small-business offerings as well. Citizens Financial Group, of Providence, Rhode Island, a subsidiary of the Royal Bank of Scotland, recently announced it would add 500 jobs in its retail and small-business units. KeyBank began a campaign in April to win new small-business customers with incentives like free business checking for 12 months and eligibility for additional savings on personal checking, Internet banking and payroll processing. And Fleet is offering a bundle of products-including 200 monthly transactions, overdraft protection, online banking and bill payment, and a credit card-for a fixed monthly price.
Gulley says PNC expects things to get better in terms of credit, as the economy, which forced many entrepreneurs to pull back on plans for expanding their businesses, improves. "We're looking at later this year and 2003 as an opportunity where a lot of small businesses will be back thinking about expanding," she says. "And our goal is an ever-increasing market share in this business."
C.J. PRINCE is a New York City writer who specializes in business topics.